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Taxes versus quotas : the case of cocoa exports, Volume 1
 
Author:Panagariya, Arvind; Schiff, Maurice; Collection Title:Policy, Research, and External Affairs working papers ; no. WPS 756. Trade policy
Date Stored:2001/04/26Document Date:1991/08/31
Document Type:Policy Research Working PaperSubTopics:Environmental Economics & Policies; Economic Theory & Research; Free Trade; Access to Markets; Public Sector Economics
Language:EnglishMajor Sector:(Historic)Economic Policy
Report Number:WPS756Sub Sectors:Trade
Volume No:1  

Summary: The authors are particularly interested in evaluating the concern that efficiency or policy-induced changes in the supply of exports of primary commodities, such as cocoa, coffee, and tea, may lead to such a large decline in the prices of those commodities that export revenues and incomes of the exporting countries actually decline. This paper focuses on the implications of quantitative restrictions. It compares the implications of optimal Nash quotas and taxes when two or more countries compete against each other in the world market and finds that the outcome under taxes is less restrictive than under quotas but that the countries' profits are higher under quotas than under taxes. In simulations undertaken for the world cocoa market, it finds that for most countries optimal Nash taxes yield lower profits than the initial taxes or quotas. It also finds that even if countries choose taxes or quotas optimally, growth in a country can lead to a decline in the combined real income of the exporting countries. The simulations also cast doubt on the hypothesis that a market with five or more players can be regarded as roughly perfectly competitive.

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