Economic Theory

, Volume 55, Issue 1, pp 69–99 | Cite as

Steepest ascent tariff reform

Research Article

Abstract

The policy reform literature is primarily concerned with the construction of reforms that yield welfare gains. By contrast, this paper’s contribution is to develop a theoretical concept for which the focus is upon the sizes of welfare gains accruing from policy reforms rather than upon their signs. In undertaking this task, and by focusing on tariff reforms, we introduce the concept of a steepest ascent policy reform, which is a locally optimal reform in the sense that it achieves the highest marginal gain in utility of any feasible local reform. We argue that this reform presents itself as a natural benchmark for the evaluation of the welfare effectiveness of other popular tariff reforms such as the proportional tariff reduction and the concertina rules, since it provides the maximal welfare gain of all possible local reforms. We derive properties of the steepest ascent tariff reform, construct an index to measure the relative welfare effectiveness of any given tariff reform, determine conditions under which proportional and concertina reforms are locally optimal and provide illustrative examples.

Keywords

Piecemeal tariff policy Locally optimal reforms 

JEL Classification

D60 F13 H21 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.Copenhagen Business SchoolFrederiksbergDenmark
  2. 2.School of Economics, Australian School of BusinessThe University of New South WalesSydneyAustralia

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