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  • Lerner Symmetry Theorem

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    Yuk Ngo Fong
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    The Lerner Symmetry Theorem states that an import tax is equivalent to an export tax, as both lead to the same ratio of domestic to foreign prices. Specifically, the theorem shows that an import tax that raises import prices by a factor of 1+t will have the same economic effect as an export tax that lowers export prices by the same factor. Therefore, a country cannot simultaneously pursue import substitution through import taxes and export promotion, as these policies have equivalent effects on trade prices.

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    The Lerner Symmetry Theorem states that an import tax is equivalent to an export tax, as both lead to the same ratio of domestic to foreign prices. Specifically, the theorem shows that an import tax that raises import prices by a factor of 1+t will have the same economic effect as an export tax that lowers export prices by the same factor. Therefore, a country cannot simultaneously pursue import substitution through import taxes and export promotion, as these policies have equivalent effects on trade prices.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
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    85 views1 page

    Lerner Symmetry Theorem

    Uploaded by

    Yuk Ngo Fong
    The Lerner Symmetry Theorem states that an import tax is equivalent to an export tax, as both lead to the same ratio of domestic to foreign prices. Specifically, the theorem shows that an import tax that raises import prices by a factor of 1+t will have the same economic effect as an export tax that lowers export prices by the same factor. Therefore, a country cannot simultaneously pursue import substitution through import taxes and export promotion, as these policies have equivalent effects on trade prices.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Flag for inappropriate content
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    The Lerner Symmetry Theorem says that an import tax on all imports is equivalent to an export

    tax on all exports.

    Import tax (or import tari¤)

    pint ext
    M = pM (1 + t)

    and pint ext


    X = pX

    int ext
    pX pX 1
    =) =
    pM pM 1+t

    Export tax

    pint ext
    M = pM

    and pint ext


    X (1 + t) = pX

    int ext
    pX pX
    =) (1 + t) =
    pM pM
    int ext
    pX pX 1
    =) =
    pM pM 1+t

    The Lerner Symmetry Theorem can explain why import substitution is contradictory to export pro-
    motion. A country cannot adopt import-substitution and export-promotion at the same time.

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