Factor tariffs and income

Henry Thompson

The International Trade Journal, 2018, vol. 32, issue 4, 388-396

Abstract: This article examines a tariff on an imported factor of production in a small, open economy with two domestic factors. Suppose the imported factor is intensive in export production, and labor in import competing production. The factor tariff would reduce export production and trade, but raise the wage. The flexibility afforded by the three factors raises the possibility that import spending might fall more than the decrease in output. That is, the factor tariff could raise income. Inelastic demand for the imported factor and a high labor share of income favor increased income.

Date: 2018
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DOI: 10.1080/08853908.2018.1476195

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