Tariff Reform in a Small Open Economy with Public Production

This paper examines the welfare effects of the reduction of the highest tariffs and the uniform change of all tariffs in a small open economy with public production. Using the restricted GNP and expenditure functions, the author shows that such tariff reforms can improve the welfare of the economy if the public production is initially abundant. A change in the public production, as well as a change in the distortion of tariff structures, is shown to affect the welfare of the economy.