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Taxes, tariffs and trade costs under oligopoly

Zhang, Jingjing 2017. Taxes, tariffs and trade costs under oligopoly. PhD Thesis, Cardiff University.
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Abstract

This study compares ad valorem and per-unit taxes in public finance and international trade and examines the welfare effects of trade cost in general oligopolistic equilibrium (GOLE). In chapter two, following Grazzini (2006), the welfare comparison of ad valorem and per-unit taxation is conducted in an exchange economy under Cournot competition. It is shown that the exceptional result in Grazzini (2006) that a per-unit tax can be welfare superior to an ad valorem tax, entirely depends on the form of social welfare function. Furthermore, the possibility of the dominance of per-unit taxation is due to the effect of taxation on the redistribution of income rather than from any efficiency gain. In chapter three, assuming that the home government maximises the tariff revenue, the welfare with ad valorem tariff is higher than that with per-unit tariff given the constraint of FDI cost. The maximum revenue collected by the home government is always higher with ad valorem tariff under Cournot competition. However, under Bertrand competition with differentiated products, the maximum revenue with per-unit tariff is higher than that with ad valorem tariff if the FDI cost is sufficiently low. This is because the introduction of product differentiation and nature of Bertrand competition both intensify the competition and lower the prices. In chapter four, by using the general oligopolistic equilibrium (GOLE) model developed by J. Peter Neary, it is shown that social welfare is also U-shaped in the trade cost under Cournot competition. The result is in line with Brander (1981) and Brander and Krugman (1983). In particular, when the trade cost is sufficiently high, a reduction in trade cost will increase the competitive wage due to the redistribution of labour, and the equilibrium prices as a function of trade costs follows a hump-shaped pattern if the products are homogeneous.

Item Type: Thesis (PhD)
Date Type: Submission
Status: Unpublished
Schools: Business (Including Economics)
Funders: Julian Hodge Bank
Date of First Compliant Deposit: 2 May 2018
Last Modified: 19 Oct 2019 02:26
URI: http://orca.cf.ac.uk/id/eprint/111146

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