Whether to Choose Tariffs or Subsidies to Protect a Domestic Industry

Frank Westermann () and Frank Westermann
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Frank Westermann: UCLA and CESifo, Postal: Bunche Hall 9357, Department of Economics,, UCLA, Los Angeles, CA 90095-1477 USA
Frank Westermann: UCLA and CESifo
Authors registered in the RePEc Author Service: Frank Westermann

Journal of Economic Integration, 2003, vol. 18, 150-163

Abstract:

The use of tariffs in the absence of subsidies in small countries is an empirical observation which stands in sharp contrast to the theoretical literature of trade policy. We analyze the welfare effects of tariffs and subsidies in a homogeneous good duopoly game with cost asymmetries between the two firms, allowing for distortionary taxation. We find that for reasonable values of the distortion parameter or for a large cost disadvantage of the home firm, a tariff is the optimal policy tool.

Keywords: Strategic trade; Economies in transition; Cost asymmetries; Distortionary taxation (search for similar items in EconPapers)
JEL-codes: F12 F13 O20 (search for similar items in EconPapers)
Date: 2003
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0229

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