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On the Equivalence of Tariffs and Quotas under a Revenue Constraint

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  • Jiunn‐Rong Chiou
  • Hong Hwang
  • Yan‐Shu Lin

Abstract

This paper sets out a duopolistic model to examine the price and welfare equivalence of tariffs and quotas, given the quota rent is equal to the tariff revenue. It shows that the domestic welfare ranking of the two trade policies crucially depends on the relative costs of the domestic and foreign firms; when the domestic firm's relative costs are lower than those of the foreign firm, a quota regime generally leads to a higher welfare level than that of an equivalent tariff regime. This finding contrasts sharply with the conclusions of Dasgupta and Stiglitz (1977), where it was found that a tariff regime always generates higher domestic welfare.

Suggested Citation

  • Jiunn‐Rong Chiou & Hong Hwang & Yan‐Shu Lin, 2005. "On the Equivalence of Tariffs and Quotas under a Revenue Constraint," Review of Development Economics, Wiley Blackwell, vol. 9(3), pages 343-358, August.
    • Handle: RePEc:bla:rdevec:v:9:y:2005:i:3:p:343-358
    DOI: 10.1111/j.1467-9361.2005.00280.x
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    References listed on IDEAS

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    1. Kubota, Keiko, 2000. "Fiscal constraints, collection costs, and trade policies," Policy Research Working Paper Series 2366, The World Bank.
    2. Thomas Moutos, 2001. "Why Do Poor democracies Collect a Lot of Tariff Revenue?," Economics and Politics, Wiley Blackwell, vol. 13(1), pages 95-112, March.
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    Cited by:

    1. Etzaz Ahmad & Maha Ahmad & Ghulam Saghir, 2021. "An Analysis of Pakistan’s Agricultural Commodities based on Effective Protection Rate and Its Decomposition," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 60(3), pages 235-249.

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