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Welfare policy and multi-national monopolies

Published online by Cambridge University Press:  17 February 2009

John Rickard ,
Allen Russell  and
Christine Martini
John Rickard
Affiliation:
Graduate School of Management, Deakin University, Geelong, Victoria 3217.
Allen Russell
Affiliation:
Department of Mathematics, The University of Melbourne, Parkville, Victoria 3052, Australia.
Christine Martini
Affiliation:
Department of Accounting and Finance, The University of Melbourne, Parkville, Victoria 3052.
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Abstract

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This paper examines the role of import tariffs and consumption taxes when a product is supplied to a domestic market by a foreign monopoly via a subsidiary. It is assumed that there is no competition in the domestic market from internal suppliers. The home country is able to levy a profits tax on the subsidiary; the objective of our analysis is to determine the levels of tariff or consumption tax which maximise national welfare. Comparisons are made under the two alternative policies from the perspectives of national welfare, total national cost and average national cost. The major policy implication of the analysis is that a consumption tax is the more effective instrument for maximising national welfare provided the profits tax is less than a certain critical value; if the profits tax exceeds this value then a tariff, though in the form of a subsidy, is the most effective instrument. Our results complement, correct and extend an earlier analysis by Katrak (1977) [6].

Type
Research Article
Information
The ANZIAM Journal , Volume 34 , Issue 2 , October 1992 , pp. 133 - 152
Copyright
Copyright © Australian Mathematical Society 1992

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