The Consumer Tax Equivalent of a tariff with imperfect substitutes

In estimating the Consumer Taw Equivalent (CTE) and Producer Subsidy Equiva lent (PSE) of a tariff, it is often assumed that the imported good is a per fect substitute for the relevant locally made good. However, in evaluating the economy-wide effects of a change in tariff using general equilibrium mo dels, it is common to assume that the imported good is an imperfect substit ute (so-called Armington assumption).(1) This paper estimates CTE assuming imperfect substitution in order to be consistent with the assumption common ly used in general equilibrium models. It shows how estimates of the CTE an d PSE are sensitive to assumptions about the substitution elasticity of dem and and the price elasticity of supply for the locally made good.