The myth of profit-shifting trade policies

Onur Koska and Frank Stähler

Economics Letters, 2016, vol. 140, issue C, 39-41

Abstract: Since Dixit (1984), it is well accepted that a home country’s best policy is to ban imports in an oligopolistic market if the resulting monopoly has a cost advantage over imports. This note (i) provides a formal proof and (ii) extends this result to symmetric firms. When domestic instruments are available, the optimal policy in a non-cooperative game is to subsidize local production such that it completely replaces imports. This policy is also globally first-best.

Keywords: Import tariffs; Export subsidies; Profit shifting (search for similar items in EconPapers)
JEL-codes: F13 (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (1)

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Related works:
Working Paper: The Myth of Profit-Shifting Trade Policies (2015)
Working Paper: The Myth of Profit-Shifting Trade Policies (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:140:y:2016:i:c:p:39-41

DOI: 10.1016/j.econlet.2015.12.024

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