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Tariffs that may fail to protect: A model of trade and public goods

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  • Biswas, Rajit

Abstract

This paper develops a model of small open economy, with a differentiated goods sector and voluntary provisioning of public good. It is shown that trade policy can alter the quantity of public good provided in the equilibrium. Interestingly, tariffs may fail to protect, leading to a Metzler Paradox like situation. This is because the income effect generated due to the imposition of tariff can lead to an increase in the contribution to the public good. An expanding public sector crowds out the import competing sector. This result holds unambiguously in the neighbourhood of free trade.

Suggested Citation

  • Biswas, Rajit, 2014. "Tariffs that may fail to protect: A model of trade and public goods," MPRA Paper 56707, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:56707
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    File URL: https://mpra.ub.uni-muenchen.de/56707/1/MPRA_paper_56707.pdf
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    References listed on IDEAS

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    1. Chamberlin, John, 1974. "Provision of Collective Goods As a Function of Group Size," American Political Science Review, Cambridge University Press, vol. 68(2), pages 707-716, June.
    2. Davis, Donald R, 1998. "The Home Market, Trade, and Industrial Structure," American Economic Review, American Economic Association, vol. 88(5), pages 1264-1276, December.
    3. Debasis Mondal, 2013. "Public Good Provision Under Monopolistic Competition," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 15(3), pages 378-396, June.
    4. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    5. Paul Pecorino, 2009. "Monopolistic Competition, Growth and Public Good Provision," Economic Journal, Royal Economic Society, vol. 119(534), pages 298-307, January.
    6. Lloyd A. Metzler, 1949. "Tariffs, the Terms of Trade, and the Distribution of National Income," Journal of Political Economy, University of Chicago Press, vol. 57(1), pages 1-1.
    7. Sen, Partha & Ghosh, Arghya & Barman, Abheek, 1997. "The Possibility of Welfare Gains with Capital Inflows in a Small Tariff-Ridden Economy," Economica, London School of Economics and Political Science, vol. 64(254), pages 345-352, May.
    8. Martin McGuire, 1974. "Group size, group homo-geneity, and the aggregate provision of a pure public good under cournot behavior," Public Choice, Springer, vol. 18(1), pages 107-126, June.
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    Cited by:

    1. Rajit Biswas & Kumar Shubham, 2018. "Tariffs, Efficiency Wages and Unemployment," Journal of Industry, Competition and Trade, Springer, vol. 18(4), pages 503-511, December.

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    More about this item

    Keywords

    trade; monopolistic competition; tariffs; public goods;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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