Import tariffs, quality investment and welfare

Roberto Hernan Gonzalez
Authors registered in the RePEc Author Service: Praveen Kujal

UC3M Working papers. Economics from Universidad Carlos III de Madrid. Departamento de Economía

Abstract: In this paper we study incentives for a government to impose a discriminatory or uniform import tariff on its low and high quality imports. In comparison to free trade both tariffs decrease total welfare. In response to any tariff, firms decrease quality investment and total output sold declines. The degree of product differentiation under both the tariffs increases. Consumer surplus declines by a greater amount than the increase in revenues under an import tariff. While the uniform tariff works to the advantage of the high quality firm, the discriminative tariff works to the advantage of the low quality firm. Total welfare, though lower than under free trade, is greater under a uniform than under a discriminatory tariff.

Date: 2005-11
New Economics Papers: this item is included in nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:cte:werepe:we056116

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