Should Tariff Reductions be Announced? An Intertemporal Computable General Equilibrium Analysis

Abstract

In this paper the macro and structural implications of three alternative tariff‐reduction strategies are examined. Under the first strategy, which is similar to that adopted in Australia in 1973, the tariff cut is implemented without warning. The second strategy is consistent with the current approach of phasing in tariff cuts according to a previously announced schedule. Under the third strategy the tariff cut is implemented several years after it is announced. Our results suggest that if tariffs are to be reduced then it is preferable to implement the policy without warning.