Simulated economic impacts in applied trade modelling: a comparison of tariff aggregation approaches

This paper assesses the performance of two recently developed tariff aggregators in reducing tariff aggregation bias by examining a set of Swiss beef market liberalisation scenarios. Specific sources of tariff aggregation bias are addressed: substitution effects on import demand, existing overprotective buffers of tariff protection, and Tariff Rate Quotas (TRQ). The proposed aggregators are linked, as standalone modules, to a global large-scale partial equilibrium model. Simulation results are also benchmarked against a standard aggregator for systematic comparison. The assessment shows that the choice of the aggregation method has considerable effects on simulated economic impacts, specifically in the case of heterogeneous tariff cuts and large tariff dispersion. For example, simulated domestic price impacts using the proposed methods are reduced to one third compared to standard aggregation. Simulated welfare changes can be larger or smaller than those derived using standard methods, depending on the particular TRQ-rent allocation approach. The proposed tariff aggregators implement negotiated tariff schedules more accurately, by exploiting tariff line level details of trade- and trade policy data. Our simulation results suggest that they also reduce aggregation bias, consequently enhancing the potential contributions of trade modelling to evidence-based policy making.

HIMICS Mihaly;  LISTORTI Giulia;  TONINI A; 

2020-04-03

ELSEVIER SCIENCE BV

JRC117535

0264-9993 (online),   

https://www.sciencedirect.com/science/article/pii/S0264999317315948?via%3Dihub,    https://publications.jrc.ec.europa.eu/repository/handle/JRC117535,   

10.1016/j.econmod.2019.08.007 (online),