Optimal Tariffs on Intermediate and Final Goods: The Case of Tropical Forest Products

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Abstract
Products made from tropical timber are subject to a variety of tariff and nontariff barriers. This paper considers the potential welfare gains from the imposition of optimal (welfare-maximizing) tariffs on these products. Optimal tariffs and associated welfare gains are determined by applying nonlinear programming to a static (single-period), three-region, three-product, partial equilibrium simulation model of the tropical forest products sector. Optimal tariffs are determined for each region both with and without retaliation by other regions. In the case of retaliation, two- and three-region Cournot-Nash equilibria are described. Principal findings are that modest welfare gains are possible in the absence of retaliation, but large losses may result if other regions retaliate. Since tariff revenue is the critical component of the welfare increase, the redistribution of this revenue has important equity implications. For. Sci. 35(3):720-731.

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