Lerner Symmetry: A Modern Treatment
American Economic Review: Insights
vol. 1,
no. 1, June 2019
(pp. 13-26)
Abstract
Which policies are protectionist and which ones are not? The Lerner Symmetry Theorem establishes that import tariffs and export taxes are equally protectionist. In this paper we provide a modern treatment of this classical result, highlighting the importance of multinational firms, global imbalances, and imperfect competition. Under perfect competition, the result follows from the separability of consumption and production across countries, ruling out tourism and some forms of multinational firms, but not others. Though we do not require trade balance, the role of initial assets is subtle: our result rules out foreign ownership of domestic assets, but does not constrain domestic ownership of foreign assets. Under imperfect competition, our result effectively rules out all multinational firms. We conclude by discussing the implications for border adjustment taxes.Citation
Costinot, Arnaud, and Iván Werning. 2019. "Lerner Symmetry: A Modern Treatment." American Economic Review: Insights, 1 (1): 13-26. DOI: 10.1257/aeri.20170006Additional Materials
JEL Classification
- D41 Market Structure, Pricing, and Design: Perfect Competition
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- F13 Trade Policy; International Trade Organizations
- F14 Empirical Studies of Trade
- F23 Multinational Firms; International Business