On the Equivalence of Tariffs and Quotas under a Revenue Constraint |
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Authors: | Jiunn-Rong Chiou Hong Hwang Yan-Shu Lin |
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Affiliation: | Department of Economics, National Central University. E-mail: .; Department of Economics, National Taiwan University, 21 Hsu Chow Road, Taipei 10020, Taiwan. Tel: 886-2-23519641, ext. 444;Fax: 886-2-23584147;E-mail: .; Department of Economics, National Dong Hwa University. E-mail: . |
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Abstract: | This paper sets out a duopolistic model to examine the price and welfare equivalence of tariffs and quotas, given the quota rent is equal to the tariff revenue. It shows that the domestic welfare ranking of the two trade policies crucially depends on the relative costs of the domestic and foreign firms; when the domestic firm's relative costs are lower than those of the foreign firm, a quota regime generally leads to a higher welfare level than that of an equivalent tariff regime. This finding contrasts sharply with the conclusions of Dasgupta and Stiglitz (1977 ), where it was found that a tariff regime always generates higher domestic welfare. |
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