World Economy
World Economy
World Economy
Set of flashcards Details
| Flashcards | 20 |
|---|---|
| Language | English |
| Category | Macro-Economics |
| Level | University |
| Created / Updated | 28.06.2014 / 19.03.2016 |
| Licencing | Not defined |
| Weblink |
https://card2brain.ch/box/world_economy
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What are other forms of trade barriers?
- Voluntary Export Restraint (VER)
- Health and Safety Regulations
- Government Purchasing Restrictions
- Local Content Requirement
What are the forms a tariff can take?
- Ad volarem tariff: a fixed percentage tax on the value (i.e. price) of a traded commoditiy
- Specific tariff: a fixed sum tax per unit of a traded commodity
- Compound tariff: a combination of an ad valorem and specific tariff
What are the advantages/disadvantages of quotas?
- Producers are effectively shielded
- Prices in the world market cannot be estimated (hard to set a quota limit)
- There is no ToT effect
- Part of quota rent (c) goes to license owner, part goes to domestic government
- Fiscal revenues cannot be predicted in general
- Policy damages home's welfare
- RETALIATION
- Domestic producers have an incentive to lobby for obtaining protection by quotas
- Since importers need a license they have an incentive to "take influence"
- Thus, import quota sets incentives for rent-seeking and corruption
- They lower competition and are a disincentive for innovation.
What are the disadvantages of Export Subsidies
- Taxpayer's money is channelled to arbitrarily chosen industries and companies
- Domestic industry is massively distorted
- Negative welfare effect
- RETALIATION
Pros and cons of free trade
- politicians don't have all the information to steer markets
- protected industries absorb money other industries cannot benefit from
- strategic trade policy damages other country's industries -> trade war - retaliation
- once a policy is in force, politicians will take advantage of it (rent-seeking)
Collective Action Problem
While it is in the interests of the group as a whole to press for favourable policies, it is not in any individual's interest to do so. Therefore few companies which have a big gain will win through lobbying because many consumers with a tiny loss don't care.
Principles of General Agreement on Tariffs and Trade (GATT)
- Eliminating nontariff barriers
- Reducing tariff rates
- Binding tariff rates (having a country agree not to raise tariff in future)
- most favoured nation (MFN) principle
Reducing works a lever and binding as ratchet.
Most Favoured Nation principle
Each GATT country promises that all countries will pay tariffs no higher than the nation that pays the lowest.
A country can give preference to other countries by allowing 0 tariff. There the MFN principle doesn't apply.
