Maximum‐revenue tariffs versus free trade
| Author | David R. Collie |
| DOI | http://doi.org/10.1111/sjpe.12245 |
| Published date | 01 September 2020 |
| Date | 01 September 2020 |
442
|
Scott J Polit Econ. 2020 ;67:442–447.
wileyonlinelibrary.com/journal/sjpe
1 | INTRODUCTION
A country may set i ts import t ariff to maximi se tariff reve nue rather than we lfare if it does no t have alternative
sources of governme nt revenue such as an effi cient income tax or a sal es tax system. In f act, even though the f ederal
government of the USA h as an efficient incom e tax system, Dona ld Trump has tweeted that imp ort tariffs a re a ‘great
revenue producer’.1 Therefore, the use of import t ariffs as a source of governme nt revenue has become a matter of
1See Chad P. Bown and D ouglas A. Irw in, ‘Is Trump right w hen he tweets t hat tariffs b ring in governme nt revenue? Here ar e 5 things you need t o
know ’, The Washington Post, 16th Jul y 2019, https://www.washi ngton post.com/polit ics/2019/07/16/tarif f-reven ue-trump -tweet s-thing
s-you-need-know/
Accepted: 18 March 2020
DOI: 10 .1111/sjpe.1 2245
ORIGINAL ARTICLE
Maximum-revenue tariffs versus free trade
David R. Collie
This is an open access article under the terms of the Creative Commons Attribution-NonCommercial-NoDerivs License, which
permits us e and distributio n in any medium, provid ed the original wor k is properly cited , the use is non-comme rcial and no
modifications or adaptations are made.
© 2020 The Autho rs. Scottish Journal of Political Economy publishe d by John Wiley & Sons Ltd o n behalf of Scottis h Economic Societ y
Cardiff Business School, Cardiff University,
Cardi ff, UK
Correspondence
David R Collie, C ardiff Busines s School,
Cardiff Un iversity, Cardif f, UK.
Email: collie@cardiff.ac.uk
Abstract
Welfare with the maxim um-revenue tariff i s compared to
free-trade welfare under Cournot duopoly with differen-
tiated products; under Bertrand duopoly with differenti-
ated products; a nd under perfe ct competition in th e case
of a large country abl e to affect its ter ms of trade. Under
Cournot duopoly and Bertrand duopoly, assuming linear
demands and const ant marginal costs , welfare with the
maximum-revenue ta riff is always higher t han free-trade
welfare. Under per fect competit ion, assuming linear d e-
mand and supply, welfare wit h the maximum-revenue tariff
will be higher than fre e-trade welfare if the country has su f-
ficient market power.
KEYWORDS
Bertrand oligopoly, Cournot oligopoly, free trade, maximum-
revenue tariff, perfect competition
JEL CLASSIFI CATION
F11; F12; F1 3
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