The Impact of Optimal Tariffs and Taxes on Agglomeration

This paper extends an economic geography model by tariffs to analyze their impact on welfare and sustainability of agglomerations. Policies with and without cooperation are compared, with the goal of maximizing aggregated welfare in the former and regional welfare in the latter case. The main result is that under cooperation poorer regions are worse off in two respects. In the short-run they loose even more welfare and in the long-run sustainable agglomerations in richer regions get more likely. Thus, although cooperation could generate aggregated welfare gains the potential losers face even in the short-run no incentive to remove tariffs unless they are compensated appropriately, for instance by transfers. In this sense transfers from the rich to the poor are not only a policy to reach the goal of equity but also a necessary precondition to reach aggregated efficiency.


Issue Date:
2002
Publication Type:
Working or Discussion Paper
PURL Identifier:
http://purl.umn.edu/26154
Total Pages:
27
JEL Codes:
F13; H21; F42; R12; F15
Series Statement:
HWWA Discussion Paper 212




 Record created 2017-04-01, last modified 2017-08-24

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