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Open Access Publications from the University of California

Tariff Reform in the Presence of Sector-specific Distortions


The problem of choosing second-best trade policies is modified by including sector-specific policies as well as tariffs. We obtain conditions under which reduction of the largest tariff is welfare improving. Formulae for the optimal tariff and sector-specific subsidy are used to study the design of optimal policy menus. The theory is illustrated by an empirical general equilibrium model of the U. S. economy which emphasizes agriculture. The model suggests that reductions in agricultural protection in the United States would be welfare improving.

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