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On the Equivalence of Tariffs and Quotas under a Revenue Constraint
Author(s) -
Chiou JiunnRong,
Hwang Hong,
Lin YanShu
Publication year - 2005
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2005.00280.x
Subject(s) - economics , tariff , welfare , equivalence (formal languages) , revenue , microeconomics , constraint (computer aided design) , international economics , ranking (information retrieval) , market economy , machine learning , computer science , accounting , mechanical engineering , linguistics , philosophy , engineering
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.