The myth of profit-shifting trade policies

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2016-03-01

Author

Koska, Ahmet Onur
Staehler, Frank

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Since Dixit (1984), it is well accepted that a home country's best policy is to ban imports in an oligopolistic market if the resulting monopoly has a cost advantage over imports. This note (i) provides a formal proof and (ii) extends this result to symmetric firms. When domestic instruments are available, the optimal policy in a non-cooperative game is to subsidize local production such that it completely replaces imports. This policy is also globally first-best. (C) 2016 Elsevier B.V. All rights reserved

Subject Keywords

Import tariffs, Export subsidies, Profit shifting

URI

https://hdl.handle.net/11511/52315

Journal

ECONOMICS LETTERS

DOI

https://doi.org/10.1016/j.econlet.2015.12.024

Collections

Department of Economics, Article

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Citation Formats

A. O. Koska and F. Staehler, “The myth of profit-shifting trade policies,” ECONOMICS LETTERS, pp. 39–41, 2016, Accessed: 00, 2020. [Online]. Available: https://hdl.handle.net/11511/52315.