Public inputs and land taxes in a small open economy

In this paper we examine the issues of gains from trade and the welfare effects of trade policies in the presence of public inputs. Based on the formulation of Negishi (Journal of Public Economics 2 (1973), 231–40), we assume that public inputs are financed by a land tax scheme. We show that the welfare effects of trade policies and the desirability of trade depend crucially on the rules of public input provision reflecting different conjectures of the government.