and allows users to choose between original I/O tables that reflect either direct intermediate input requirements alone, or that take into account both direct and indirect requirements.<sup>6</sup> Moreover, it allows users to deviate from the perfect homogeneity assumption between imports and domestic inputs, underlying most studies on tariff‐related input costs available to date.<sup>7</sup> Assuming perfect homogeneity between imported and domestic varieties has two implications. First, domestic input producers are likely to compete with an infinitely elastic supply of imports and will therefore be unable to pass‐on higher tariff associated costs to upstream producers. Only then would calculating upstream tariffs on the basis of direct inputs alone appear to be the appropriate assumption. Second, the pass‐ through from changes in tariffs to changes in input costs is likely to be close to 100 percent. By allowing for differentiation between the domestic and imported varieties of the same product, UTAS thus allows considering scenarios where the pass‐through effect of input tariffs on production costs is incomplete. With this choice, UTAS therefore greatly increases the range of modeling scenarios that can be considered compared to previous applications.

# 3) Analytical framework

UTAS is an Excel‐based tool that allows policy makers to simulate the impact of tariffs on production costs across sectors in an economy and perform comparative static analysis for different tariff structures on the basis of a simple partial equilibrium framework.<sup>8</sup> It combines I/O data with detailed product‐level tariff data to establish average output tariff rates for each sector specified in the I/O table. To do this, UTAS draws on a series of pre‐set concordance tables that establish how product‐ level tariff schedules match with more aggregate sector‐level data of I/O tables. For each I/O sector, the tool then calculates an upstream tariff ( UT ) reflecting the total incidence of all intermediate input tariffs on sector i ’s production costs as follows: The variable w�� stands for the weight of upstream sector j in sector i ’s total production output and t� stands for the simple average of all ad‐valorem tariffs on products that belong to input sector j . The parameter β� measures the level of pass‐through of a tariff in sector j on output prices of sector j and can take values between 0 and 1. On the basis of equation (1), UTAS then establishes the effective protection rate ( EPR ) in each sector i . Effective protection rates measure how a sector’s output protection weighs up against the tariff costs it faces due to protection accorded to upstream sectors relative to a sector’s value added. They are calculated as follows: Equation (2) deducts from a sector i ’s nominal protection ( β�t� ) the additional production cost that producers face on account of upstream tariffs ( UT� ), where this difference is compared with the sector’s value added share in total output ( va� ). It therefore allows policy makers to gauge the net impact of an entire tariff schedule given the sector’s backward linkages.

> 6 This is done by calculating Leontief’s inverse.

> 7 An exception is a paper by Chevassus‐Lozza et al. (2013) who show that under imperfect competition and product differentiation the impact of lower input tariffs on the probability of firms entering export markets will differ between high and low productivity firms.

> 8 Notice that the partial equilibrium approach implies that UTAS considers sectors in isolation from each other. Substitution effects between sectors are not taken into account. UTAS therefore captures predominantly short‐term effects. Substitution effects that take longer to materialize and may kick in once firms start to respond to new price signals are not considered.

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