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General Equilibrium Effects of Import Constraints under Variable Labour Supply, Public Goods and Income Taxation
Author(s) -
Michael Michael S.,
Hatzipanayotou Panos
Publication year - 1999
Publication title -
economica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.532
H-Index - 65
eISSN - 1468-0335
pISSN - 0013-0427
DOI - 10.1111/1468-0335.00177
Subject(s) - economics , tariff , small open economy , context (archaeology) , welfare , general equilibrium theory , production (economics) , open economy , variable (mathematics) , public good , terms of trade , international economics , microeconomics , macroeconomics , market economy , exchange rate , paleontology , mathematical analysis , mathematics , biology
We consider a general equilibrium trade model of a small open economy with a representative consumer, where labour supply is variable, where imports are restricted by a small tariff, a quota or a voluntary export restraint (VER), and where alongside the production of two traded goods—one imported and one exported—a pure public good is produced and funded through an income tax. Within this framework, we demonstrate, among other things, that under certain conditions, while a small tariff or quota reduces employment and welfare, a VER may increase them. Thus, in the context of a small open economy, contrary to standard results, in certain cases VERs may become the welfare‐ and employment‐dominant instrument over the alternative import restrictions.