Tariff simplification, privatization, and welfare superiority

Abstract

AbstractIn importing trade model, Cournot competition occurs between domestic semi‐public and foreign firms in domestic market; the government implements specific/ad valorem tariff. We examine the welfare effect of tariff simplification. Under general demand function, when semi‐public firms are more efficient than foreign firms with low/high privatization, tariff simplification hurts/benefits the domestic country. When semi‐public firms are less efficient than foreign firms with medium privatization, tariff simplification hurts the domestic country; else, it benefits the domestic country. When the government adopts optimal tariff rate and optimal privatization, and domestic semi‐public firms are less efficient than foreign firms, optimal privatization increases after tariff simplification.