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The Consumer Tax Equivalent of a Tariff with Imperfect Substitutes
Author(s) -
SALERIAN JOHN,
DAVIS LEE,
JOMINI PATRICK
Publication year - 1999
Publication title -
economic record
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.365
H-Index - 42
eISSN - 1475-4932
pISSN - 0013-0249
DOI - 10.1111/j.1475-4932.1999.tb02457.x
Subject(s) - economics , elasticity of substitution , tariff , imperfect , subsidy , general equilibrium theory , substitution (logic) , price elasticity of demand , elasticity (physics) , applied general equilibrium , microeconomics , econometrics , mathematical economics , international economics , computer science , production (economics) , thermodynamics , market economy , linguistics , philosophy , physics , programming language
In estimating the Consumer Tax Equivalent (CTE) and Producer Subsidy Equivalent (PSE) of a tariff, it is often assumed that the imported good is a perfect substitute for the relevant locally made good. However, in evaluating the economy‐wide effects of a change in tariff using general equilibrium models, it is common to assume that the imported good is an imperfect substitute (so‐called Arming‐ton assumption) 1 This paper estimates CTE assuming imperfect substitution in order to be consistent with the assumption commonly used in general equilibrium models. It shows how estimates of the CTE and PSE are sensitive to assumptions about the substitution elasticity of demand and the price elasticity of supply for the locally made good.