The Effect of Increment in Tariffs for Imported Goods on Consumption and Production Price Indexes in Iran

Tariff is levied for a number of purposes like protecting domestic products and/or acting as a source of government income. It causes an increment in the prices of imported goods, which, per se, influences the prices of domestic products. Some of the imported commodities are used as initial and intermediate goods in the production process of domestic products, whereas some others are used as final goods. The tariff on each part of these imports has different effects on price indexes. This paper investigates the effect of imported consumption goods’ tariff on consumer’s and producer’s price indexes. To this end, through dividing the final imports into consumption and final, and the consumption imports into household and government consumption imports, the effect of a 20% increment in tariffs for household consumption imports has been examined. Using the last commodity by commodity survey base data, the Table Adjusting Price (TAP) model is employed. The results of the research demonstrate that although the increment in tariffs for household consumption imports leads to an increment in consumer’s and producer’s price indexes, this increment is ignorable if not intensified by value added components.