Tariffs Versus Production Subsidies as Industry Protection

14 Pages Posted: 5 Mar 2013

See all articles by Yoshitomo Ogawa

Yoshitomo Ogawa

Kinki University

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER)

Date Written: February 27, 2013

Abstract

This paper provides a welfare comparison of a tariff with a combination of a production subsidy to, and a commodity tax on, an import-competing commodity in a two-country economy. We treat some plausible situations of industry protection, including where the initial tariff is above the optimal tariff, where a certain output level of a tariff-imposed commodity must be maintained, and where there is positive externality of its domestic production. In those cases we explore the optimal combination of the production subsidy and the commodity tax and show it to be superior to the tariff from the welfare viewpoint.

Keywords: Commodity Tax, Production Subsidy, Tariff, Industry Protection

JEL Classification: F11, F13, H23

Suggested Citation

Ogawa, Yoshitomo and Ono, Yoshiyasu, Tariffs Versus Production Subsidies as Industry Protection (February 27, 2013). ISER Discussion Paper No. 865. Available at SSRN: https://ssrn.com/abstract=2226138 or http://dx.doi.org/10.2139/ssrn.2226138

Yoshitomo Ogawa (Contact Author)

Kinki University ( email )

Higashi-Osaka City, Osaka 577-8502
Japan

Yoshiyasu Ono

Osaka University - Institute of Social and Economic Research (ISER) ( email )

6-1 Mihogaoka
Ibaraki, Osaka 567-0047
Japan

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