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The Effects of Import Quotas on National Welfare: Comment

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  • Omer Gokcekus
  • Edward Tower

Abstract

Recently in the Southern Economic Journal Palivos and Yip marry real and monetary analysis to provide an intriguing new argument for protection. Is this an idea which international agencies like the World Trade Organization and the World Bank should educate their member countries about? The authors consider an economy with differential cash-in-advance constraints, fiat money, and no interest payments on cash. They argue that the first best policy in such an economy is differential consumption taxes, and if the exportable is cash intensive a second best policy is an import quota. In this Comment we argue that paying interest on cash (or equivalently deflating the economy) is better than differential taxation because it is administratively simpler and cheaper; for variants of the model it is welfare superior; and it is less susceptible to manipulation by rent seekers.
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  • Omer Gokcekus & Edward Tower, 1997. "The Effects of Import Quotas on National Welfare: Comment," Southern Economic Journal, John Wiley & Sons, vol. 64(2), pages 584-587, October.
    • Handle: RePEc:wly:soecon:v:64:y:1997:i:2:p:584-587
    DOI: 10.1002/j.2325-8012.1997.tb00076.x
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    1. Bhagwati, Jagdish N & Srinivasan, T N, 1981. "The Evaluation of Projects at World Prices under Trade Distortions: Quantitative Restrictions, Monopoly Power in Trade and Nontraded Goods," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(2), pages 385-399, June.
    2. Kimbrough, Kent P., 1986. "The optimum quantity of money rule in the theory of public finance," Journal of Monetary Economics, Elsevier, vol. 18(3), pages 277-284, November.
    3. Shahid Alam, M., 1981. "Welfare implications of growth under quotas," Economics Letters, Elsevier, vol. 8(2), pages 177-180.
    4. Theodore Palivos & Chong K. Yip, 1997. "The Gains from Trade for a Monetary Economy Once Again," Canadian Journal of Economics, Canadian Economics Association, vol. 30(1), pages 208-223, February.
    5. Dixit, Avinash, 1985. "Tax policy in open economies," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 6, pages 313-374, Elsevier.
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    1. Theodore Palivos & Chong K. Yip, 1997. "The Effects of Import Quotas on National Welfare: Reply," Southern Economic Journal, John Wiley & Sons, vol. 64(2), pages 588-591, October.

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