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Welfare–maximizing and revenue–maximizing tariffs with a few domestic firms

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  • Bruno Larue
  • Jean–Philippe Gervais

Abstract

In this paper we compare the orthodox optimal tariff formula with the appropriate welfare–maximizing tariff when there are a few producing or importing firms. The welfare–maximizing tariff can be very low, voire negative in some cases, while in others it can even exceed the maximum–revenue tariff. The relationship between the welfare–maximizing tariff and the number of firms need not be monotonically increasing, because the tariff is not strictly used to internalize terms of trade externality. It is also used to manipulate cost asymmetries between producing and importing firms. Welfare–maximizing specific tariffs are never worse than their ad valorem counterparts. JEL Classification F13, L13 Tarif qui maximise le bien être et tarif qui maximise le revenu quand on est en présence de peu de firmes. Nous comparons le tarif optimal orthodoxe au tarif maximisant le bien être lorsqu’il y a peu de firmes productrices ou importatrices. Le tarif qui maximise le bien être est parfois très bas, même négatif, mais il peut excéder le tarif qui maximise le revenu dans d’autres cas. La relation entre le tarif et le nombre de firmes n’est pas nécessairement monotone parce que le tarif n’est pas strictement utilisé pour améliorer les termes d’échange. Il est aussi utilisé pour manipuler les asymétries dans les coûts des firmes productrices et importatrices. Le tarif spécifique n’est jamais dominé par le tarif ad valorem.

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  • Bruno Larue & Jean–Philippe Gervais, 2002. "Welfare–maximizing and revenue–maximizing tariffs with a few domestic firms," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 35(4), pages 786-804, November.
    • Handle: RePEc:wly:canjec:v:35:y:2002:i:4:p:786-804
    DOI: 10.1111/1540-5982.00154
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    Cited by:

    1. Yoshiyasu Ono, 2010. "Trade Policy, Exchange Rate Adjustment and Unemployment," Chapters, in: Noel Gaston & Ahmed M. Khalid (ed.), Globalization and Economic Integration, chapter 7, Edward Elgar Publishing.
    2. Dinlersoz, Emin & Dogan, Can, 2010. "Tariffs versus anti-dumping duties," International Review of Economics & Finance, Elsevier, vol. 19(3), pages 436-451, June.
    3. Hayashibara, Masayuki & Ohkawa, Takao & Nomura, Ryoichi & Okamura, Makoto, 2024. "Optimal degree of interagency coordination of subsidy and tariff policies," International Review of Economics & Finance, Elsevier, vol. 89(PA), pages 327-336.
    4. Giorgos Stamatopoulos, 2021. "Bidding for tariff exemptions in international oligopolies," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 28(3), pages 515-532, June.
    5. Leonard Wang & Jen-yao Lee & Chin-shu Huang, 2012. "Maximum-Revenue and Optimum-Welfare Tariffs in International Mixed Duopoly: Does the Order of Firms’ Move Matter?," Journal of Industry, Competition and Trade, Springer, vol. 12(3), pages 273-283, September.
    6. Leonard F.S. Wang & Jean Wang & Jen‐Yao Lee, 2010. "Optimum‐Welfare And Maximum‐Revenue Tariffs In Mixed Oligopoly With Foreign Competitors," Australian Economic Papers, Wiley Blackwell, vol. 49(1), pages 60-72, March.
    7. Steve McCorriston & Donald MacLaren, 2013. "Redistribution, state trading enterprises and ‘politically optimal’ tariffs," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 46(4), pages 1351-1379, November.
    8. Bruno Larue & Olivier Bonroy, 2009. "Seemingly Competitive Food Retail Regulations: Who Do They Really Help?," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 57(3), pages 305-324, September.
    9. Yoshiyasu Ono, 2006. "Protective Trade Policies 'Reduce' Employment: A Dynamic Optimization Approach," ISER Discussion Paper 0659, Institute of Social and Economic Research, Osaka University.
    10. Yoshiyasu Ono, 2014. "International Economic Interdependence and Exchange-rate Adjustment under Persistent Stagnation," The Japanese Economic Review, Japanese Economic Association, vol. 65(1), pages 70-92, March.
    11. Larue, Bruno & Kotchoni, Rachidi & Pouliot, Sébastien, 2013. "Non-Equivalent Ad Valorem Equivalents and Gravity," 2013 Annual Meeting, August 4-6, 2013, Washington, D.C. 150471, Agricultural and Applied Economics Association.
    12. Sébastien Pouliot & Bruno Larue, 2012. "Import sensitive products and perverse tariff-rate quota liberalization," Canadian Journal of Economics, Canadian Economics Association, vol. 45(3), pages 903-924, August.
    13. Wang, Leonard F.S. & Lee, Jen-yao, 2014. "Ranking the optimum tariff and the maximum revenue tariff in vertically related markets," Research in Economics, Elsevier, vol. 68(3), pages 222-229.
    14. Larue, Bruno & Gervais, Jean-Philippe & Pouliot, Sebastien, 2007. "Should tariff-rate quotas mimic quotas?: Implications for trade liberalization under a supply management policy," The North American Journal of Economics and Finance, Elsevier, vol. 18(3), pages 247-261, December.
    15. David R. Collie, 2020. "Maximum‐revenue tariffs versus free trade," Scottish Journal of Political Economy, Scottish Economic Society, vol. 67(4), pages 442-447, September.
    16. Xu, Lili & Lee, Sang-Ho & Wang, Leonard, 2017. "Strategic Trade and Privatization Policies in Bilateral Mixed Markets," MPRA Paper 80340, University Library of Munich, Germany.
    17. Masayuki Okawa & Tatsuya Iguchi, 2016. "Welfare-improving Coordinated Tariff and Sales Tax Reforms under Imperfect Competition," Review of Development Economics, Wiley Blackwell, vol. 20(2), pages 475-487, May.
    18. Bruno Larue, 2018. "Economic Integration Reconsidered," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 66(1), pages 5-25, March.
    19. Roger Clarke & David R. Collie, 2008. "Maximum‐revenue versus Optimum‐welfare Export Taxes: a Delegation Game," Review of International Economics, Wiley Blackwell, vol. 16(5), pages 919-929, November.
    20. Wang, Leonard F.S. & Lee, Jen-Yao, 2012. "Domestic entry, optimum-welfare and maximum-revenue tariffs," Research in Economics, Elsevier, vol. 66(1), pages 106-109.

    More about this item

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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