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Tariffs versus Production Subsidies as Industry Protection

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  • Yoshitomo Ogawa
  • Yoshiyasu Ono

Abstract

This paper provides a welfare comparison of a tariff with a combination of a production subsidy to, and a commodity tax on, an import-competing commodity in a two-country economy. We treat some plausible situations of industry protection, including where the initial tariff is above the optimal tariff, where a certain output level of a tariff-imposed commodity must be maintained, and where there is positive externality of its domestic production. In those cases we explore the optimal combination of the production subsidy and the commodity tax and show it to be superior to the tariff from the welfare viewpoint.

Suggested Citation

  • Yoshitomo Ogawa & Yoshiyasu Ono, 2013. "Tariffs versus Production Subsidies as Industry Protection," ISER Discussion Paper 0865, Institute of Social and Economic Research, Osaka University.
    • Handle: RePEc:dpr:wpaper:0865
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    File URL: https://www.iser.osaka-u.ac.jp/library/dp/2013/DP0865.pdf
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    References listed on IDEAS

    as
    1. Bhagwati, Jagdish N & Ramaswami, V K & Srinivasan, T N, 1969. "Domestic Distortions, Tariffs, and the Theory of Optimum Subsidy: Some Further Results," Journal of Political Economy, University of Chicago Press, vol. 77(6), pages 1005-1010, Nov./Dec..
    2. James R. MARKUSEN, 2021. "International Externalities And Optimal Tax Structures," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 16, pages 341-355, World Scientific Publishing Co. Pte. Ltd..
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