tax levied upon goods as they cross national boundaries, usually by the government of the importing country. The words tariff, duty, and customs can be used interchangeably.
Tariffs may be levied either to raise revenue or to protect domestic industries, but a tariff designed primarily to raise revenue also may exercise a strong protective influence, while a tariff levied primarily for protection may yield revenue. Gottfried von Haberler in The Theory of International Trade (1937) suggested that the best way to distinguish between revenue duties and protective duties (disregarding the motives of the legislators) is to compare their effects on domestic versus foreign producers. (See protectionism.)
If domestically produced goods bear the same taxation as similar imported goods, or if the foreign goods subject to duty are not produced domestically, and if there are no domestically produced substitutes toward which demand is diverted because of the tariff, then the duty is not protective. A purely protective duty tends to shift production away from the export industries and into the protected domestic industries or other industries producing substitutes for which demand is increased. On the other hand, a purely revenue duty will not cause resources to be invested in industries producing the taxed goods or close substitutes for such goods, but it will divert resources toward the production of those goods and services upon which the additional government receipts are spent.
From the standpoint of revenue alone, a country can levy an equivalent tax on domestic production (to avoid protecting it) or select a relatively small number of imported articles of general consumption and subject them to low duties so that there will be no tendency to shift resources into industries producing such taxed goods (or substitutes for them). If, on the other hand, a country wishes to protect its home industries, its list of protected commodities will be long and the tariff rates high. Political goals often motivate the imposition or removal of tariffs. Tariffs may be further classified into three groups—transit duties, export duties, and import duties.
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