Optimal Production Tax and Quota Under Time Consistent Trade Policies

Posted: 14 Dec 2005

See all articles by Jean Gervais

Jean Gervais

Université Laval

Harvey E. Lapan

Iowa State University - Department of Economics

Abstract

This paper investigates the policy active importers' incentives and welfare implications of using production and trade polices in a dynamic framework where production decisions occur before consumption decisions. We show that the equilibrium for production taxes and quotas are not equivalent, and that each equilibrium depends on whether the trade policy instruments are tariffs or quotas. Under import quotas, the equilibrium policy is to tax domestic production, whereas under a tariff either a production tax or subsidy may be optimal. We also show that a collective agreement to ban production policies is likely to be welfare-improving in many circumstances.

Keywords: Import quota, Import tariff, Production tax, Production subsidy, Time Consistency

JEL Classification: F13, Q17

Suggested Citation

Gervais, Jean-Philippe and Lapan, Harvey E., Optimal Production Tax and Quota Under Time Consistent Trade Policies. American Journal of Agricultural Economics, Vol. 83, pp. 921-933, 2001, Available at SSRN: https://ssrn.com/abstract=869422

Jean-Philippe Gervais (Contact Author)

Université Laval ( email )

4415 Comtois
Quebec, Quebec G1K 7P4
Canada
418-656-2131 x 2122 (Phone)
418-656-7821 (Fax)

HOME PAGE: http://www.ulaval.ca/vrr/rech/Cherc/812121.html

Harvey E. Lapan

Iowa State University - Department of Economics ( email )

260 Heady Hall
Ames, IA 50011
United States
515 294-5917 (Phone)

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