Abstract
This article analyzes trade policy dynamics when there are sunk costs of entry and demand uncertainty. A natural generalization of the classic export tax prescription for a domestic industry facing downward-sloping foreign demand is defined and implemented as a dynamic competitive equilibrium with fully rational firms. The optimal tax rate adjustment policy is a trigger strategy. This provides a rationale for infrequent revisions of trade policy in response to exogenous shocks.
| Original language | English |
|---|---|
| Journal | Journal of International Trade and Economic Development |
| Volume | 21 |
| Issue number | 2 |
| Pages (from-to) | 197-216 |
| Number of pages | 20 |
| ISSN | 0963-8199 |
| DOIs | |
| Publication status | Published - Apr 2012 |