A Rationale for the WTO Prohibition of Export Subsidies: Strategic Export Subsidies and World Welfare
This article presents a model that provides an economic rationale for multilateral agreements, such as the WTO, that prohibit export subsidies. The model is a multicountry version of the well-known Brander and Spencer (Journal of International Economics (1985) 18, 83â€“100) analysis of profit-shifting export subsidies, with the addition of an opportunity cost of government revenue greater than unity, as in Neary (Journal of International Economics (1994) 37, 197â€“218) to capture the fact that the export subsidy will typically be funded by distortionary taxation. It explains the unilateral incentive for welfare-maximizing governments to provide export subsidies and shows how the multilateral prohibition of export subsidies may increase world welfare. Copyright Kluwer Academic Publishers 2000
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