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Maximum-Revenue versus Optimum-Welfare Export Taxes

Roger Clarke and David Collie

No E2006/22, Cardiff Economics Working Papers from Cardiff University, Cardiff Business School, Economics Section

Abstract: In a game between two exporting countries, both countries may be better off if they both delegate to policymakers who maximise tax revenue rather than welfare. However, both countries delegating to policymakers who maximise revenue is not necessarily a Nash equilibrium. The game may be a prisoner's dilemma where both countries are better off delegating to policymakers who maximise revenue, but both will delegate to policymakers who maximise welfare in the Nash equilibrium. This result is obtained in the Bertrand duopoly model of Eaton and Grossman (1986) and the perfectly competitive model of Panagariya and Schiff (1995).

Keywords: Trade Policy; Export Taxes; Game Theory; Delegation (search for similar items in EconPapers)
JEL-codes: C72 F11 F12 F13 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-pbe
Date: 2006-08
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Published in Review of International Economics , Vol. 16, No. 5, pp. 919-929.

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