This paper shows that an importing country can have an incentive to impose a tariff to extract rents earned by foreign exporters even in a perfectly competitive setting. To demonstrate this, I develop a new model of international trade that incorporates fixed costs of exporting and firm heterogeneity within a perfectly competitive framework. In this setting, despite the fact that there are no pre-existing distortions, the optimal tariff is positive even for a small country with no world market power. In the limit, as either firm heterogeneity or the fixed costs of exporting vanish, the optimal tari approaches zero.
Click here for published version: doi.org/10.1111/roie.12341