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Trade Policies for Exporting Industries under Free Entry

Author

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  • De Santis Roberto A.

    (Kiel Institute of World Economics, Kiel, Schleswig-Holstein, Germany)

  • Stähler Frank

    (University of Kiel, Kiel, Schleswig-Holstein, Germany)

Abstract

This paper computes optimal export taxes and domestic production subsidies for exporting industries under free entry.We show that domestic welfare is not at maximum, as is typically believed, when the export price is a monopoly price, and the domestic price is a competitive price, because a market structure effect has to be taken into account. Furthermore, we show that the optimal tax/subsidy formulas for an oligopoly coincide with those under perfect competition, if foreign and domestic demand functions are both linear. We also discuss optimal trade policies when only one instrument is available, and we run numerical simulations to determine and compare optimal trade taxes under endogenous and exogenous market structures.

Suggested Citation

  • De Santis Roberto A. & Stähler Frank, 2001. "Trade Policies for Exporting Industries under Free Entry," German Economic Review, De Gruyter, vol. 2(4), pages 327-338, December.
    • Handle: RePEc:bpj:germec:v:2:y:2001:i:4:p:327-338
    DOI: 10.1111/1468-0475.00043
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    References listed on IDEAS

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    1. Brander, James & Krugman, Paul, 1983. "A 'reciprocal dumping' model of international trade," Journal of International Economics, Elsevier, vol. 15(3-4), pages 313-321, November.
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