| This paper uses a numerical general equilibrium model to examine the quantitative importance of pre-existing factor tax distortions for the welfare effects of restrictive trade policies in economies with and without market power in trade. We analyze tariffs, nonauctioned import quotas (with rents accruing to domestic firms) and voluntary export restraints (with rents accruing to foreign firms). We find that allowing for interactions with pre-existing taxes can greatly magnify the overall costs of these policies, f{fn possibly by over several hundred percent! In the case of import tariffs, much of this additional cost can be offset if the tariff revenues are used to reduce other distortionary taxes. Indeed the cost discrepancy between revenue-neutral... |
