NZIER working paper
The government announced in late 2009 that it would freeze tariffs at current levels until 2015 at the earliest. We examine the potential costs and benefits to the New Zealand economy of this policy decision using a recently-developed dynamic computable general equilibrium (CGE) model of the New Zealand economy. We find that the elimination of tariffs in New Zealand delivers a very small increase in GDP as allocative efficiency improves. However, the terms of trade effects associated with the tariff removal generate a very small welfare loss. We assess the sensitivity of the welfare results to key elasticity parameters.