Abstract
This paper examines marginal deviations from free trade in an asymmetric Cournot world. We provide necessary and sufficient conditions under which small import tariffs, export subsidies, production subsidies and consumption taxes increase country-level as well as world social welfare (SW) and consumer surplus (CS). We find that free trade is generally not optimal. Some countries’ tariffs or subsidies can always improve world welfare. Every country’s export subsidy raises the sum of world SW and CS. Finally, we rank the different policies and show that production subsidies are most likely to raise world SW, followed by export subsidies and then import tariffs, whereas consumption taxes never do.
Original language | English |
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Pages (from-to) | 2036-2057 |
Number of pages | 22 |
Journal | Canadian Journal of Economics |
Volume | 55 |
Issue number | 4 |
Early online date | 20 Oct 2022 |
DOIs | |
Publication status | Published - 15 Nov 2022 |
Keywords
- Free trade
- Welfare
- Import tariffs
- Export subsidies
- Production subsidies
- Consumption tax