Taxing or subsidising an exporting industry?

Abstract

This paper analyses whether a welfare maximizing government should tax or subsidize the home firms in an industry characterized by. oligopolistic competition and differentiated products. The home firms are assumed to be pure exporters. It is shown that a symmetric, perfect Nash-equilibrium in the quantity setting game will involve an export subsidy if the industry is fairly concentrated, if the relative number of home firms is not too large and if the products are fairly homogenous. The paper presents a reduced form 'expression which makes this proposition precise. In the symmetric price setting game there is an unambigous case for an export tax.