A tariff on a productive factor and import competing supply

Abstract

A tariff on an imported factor of production such as energy or capital reduces the import as well as output in the general equilibrium of a small open economy. The present paper shows real income may rise, however, due to an increase in the import competing quantity supplied. The present competitive economy produces a single exported output with two factors of production, one purely domestic. The import competing price elasticity, shares of income and output, and factor substitution determine general equilibrium adjustments to a tariff on the imported factor.

Keywords:

• energy tariffs
• import competing supply
• income
• general equilibrium

Acknowledgements

Thanks for comments and suggestions as the present model developed go to Leland Yeager, Andy Barnett, Charlie Sawyer, Henry Kinnucan, Reid Click, Randy Beard, Hamid Beladi, Tom Osang, Gilad Sorek, Farhad Rassekh, Alex Sarris, Mike Stern, and George Chortoreas.

Disclosure statement

No potential conflict of interest was reported by the author.