Conventional wisdom says that tariffs are counter-cyclical. We analyze the relationship between business cycles and applied MFN tariffs using a disaggregated product-level panel dataset covering 72 countries between 2000 and 2011. Strikingly, and counter to conventional wisdom, we find that tariffs are pro-cyclical. Further investigation reveals that this pro-cyclicality is driven by the tariff setting behavior of developing countries; tariffs are acyclical in developed countries. We present evidence that pro-cyclical market power drives the pro-cyclicality of tariffs in developing countries, providing further evidence of the importance of terms of trade motivations in explaining trade policy.
Copyright © 2016 Elsevier.
The definitive version is available at: https://www.sciencedirect.com/science/article/pii/S0022199616301118?via%3Dihub
Lake, James, and Maia K. Linask. "Could tariffs be pro-cyclical?" Journal of International Economics 103 (2016): 124-146. doi:10.1016/j.jinteco.2016.09.007.
Lake, James and Linask, Maia K., "Could tariffs be pro-cyclical?" (2016). Economics Faculty Publications. 51.