Smuggling and Bhagwati's Nonequivalence Between Tariffs and Quotas

Download or read book Smuggling and Bhagwati's Nonequivalence Between Tariffs and Quotas written by Bruno Larue and published by . This book was released on 2003 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: The authors extend Professor Bhagwati's analysis about the nonequivalence between trade policy instruments when domestic production is monopolized and the terms of trade are endogenous, by allowing for smuggling. They show that the dominance of the ad valorem tariff over the quota is not robust. Tariffication can lower welfare even when the level of illegal imports is quite small. However, tariffication with a specific tariff is always beneficial because the specific tariff dominates the ad valorem tariff and the quota with or without smuggling. Smuggling (or the threat) also tends to lower the second-best tariff/quota, and increases welfare when imports are restricted by a quota, but lowers it under a tariff.