Optimal Production Tax and Quota Under Time Consistent Trade Policies

Jean-Philippe Gervais () and Harvey Lapan

Staff General Research Papers Archive from Iowa State University, Department of Economics

Abstract: This paper investigates the policy active importersï¾’ incentives and welfare implications of using production and trade polices in a dynamic framework where production decisions occur before consumption decisions. We show that the equilibrium for production taxes and quotas are not equivalent, and that each equilibrium depends on whether the trade policy instruments are tariffs or quotas. Under import quotas, the equilibrium policy is to tax domestic production, whereas under a tariff either a production tax or subsidy may be optimal. We also show that a collective agreement to ban production policies is likely to be welfare-improving in many circumstances.

Date: 2001-11-01
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Published in American Journal of Agricultural Economics, November 2001, vol. 83 no. 4, pp. 921-933

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Persistent link: https://EconPapers.repec.org/RePEc:isu:genres:5049

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