On optimal second-best trade intervention in the presence of a domestic divergence
When a domestic divergence such as an externality is associated with the production (or consumption) of a good, the optimal first-best intervention typically is a production (or consumption) tax-cum-subsidy (Meade 1955; Bhagwati and Ramaswami 1963; Johnson 1965). Sometimes this first-best policy instrument cannot be used, perhaps because the government dislikes explicit subsidies for political reasons or because of high costs of raising or dispersing government revenue. In extreme cases the...[Show more]
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|Source:||Australian Economic Papers|
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