A Rationale for the WTO Prohibition of Export Subsidies: Strategic Export Subsidies and World Welfare

David Collie

Open Economies Review, 2000, vol. 11, issue 3, pages 229-245

Abstract: This article presents a model that provides an economic rationale for multilateral agreements, such as the WTO, that prohibit export subsidies. The model is a multicountry version of the well-known Brander and Spencer (Journal of International Economics (1985) 18, 83–100) analysis of profit-shifting export subsidies, with the addition of an opportunity cost of government revenue greater than unity, as in Neary (Journal of International Economics (1994) 37, 197–218) to capture the fact that the export subsidy will typically be funded by distortionary taxation. It explains the unilateral incentive for welfare-maximizing governments to provide export subsidies and shows how the multilateral prohibition of export subsidies may increase world welfare. Copyright Kluwer Academic Publishers 2000

Keywords: multilateral agreements; export subsidies; strategic trade policy (search for similar items in EconPapers)
Date: 2000
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Persistent link: http://EconPapers.repec.org/RePEc:kap:openec:v:11:y:2000:i:3:p:229-245

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