A Tariff-Tax Reform under Oligopoly and Free Entry
Constructing a model of oligopoly with free entry, this paper examines the effects of a tariff reduction accompanied with a unit of consumption tax increase on welfare, government revenue, and market access. We show that the suggested policy reform reduces welfare while enhancing government revenue and market access by inducing further excess entry. Some implications of this finding are discussed in comparison with the case with a fixed number of firms, which involves a welfare loss and an ambiguous effect on government revenue and market access.
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