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Article
Optimal Production Tax and Quota under Time Consistent Trade Policies
American Journal of Agricultural Economics (2001)
  • Jean-Philippe Gervais, Laval University
  • Harvey E Lapan, Iowa State University
Abstract

This paper investigates the policy active importers’ incentives and welfare implications of using production and trade polices in a dynamic framework where production decisions occur before consumption decisions. We show that the equilibrium for production taxes and quotas are not equivalent, and that each equilibrium depends on whether the trade policy instruments are tariffs or quotas. Under import quotas, the equilibrium policy is to tax domestic production, whereas under a tariff either a production tax or subsidy may be optimal. We also show that a collective agreement to ban production policies is likely to be welfare-improving in many circumstances.

Keywords
  • Import quota,
  • Import tariff,
  • Production tax,
  • Production subsidy,
  • Time Consistency
Disciplines
Publication Date
November, 2001
Citation Information
Jean-Philippe Gervais and Harvey E Lapan. "Optimal Production Tax and Quota under Time Consistent Trade Policies" American Journal of Agricultural Economics Vol. 83 (2001)
Available at: http://works.bepress.com/jp_gervais/13/