EPRS Admin By / October 27, 2017

Maximised national welfare

Figure 10 explains that, in theory, a certain specific tariff level exists, which maximises a nation’s welfare. However this is…

Maximised national welfare

Figure 10 explains that, in theory, a certain specific tariff level exists, which maximises a nation’s welfare. However this is a theoretical concept, and ignores the fact that other countries can react to increased tarifs by increasing their import tariffs.
Beyond the optimal tariff that ensures the maximal national welfare in this economy, any additional taxation of imports results in a decrease in national welfare up to a certain point where the taxation of imports no longer affects national welfare, and is implemented mainly for political reasons (e.g. to retaliate to foreign measures).

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