TAXES, TARIFFS, AND THE GLOBAL CORPORATION

In this paper we develop some simple models of optimal tax and tariff policy in the presence of global corporations that operate in an imper fectly competitive environment. The models emphasize two important dif ferences in the practical application of tax and tariff policy - tax, but not tariff, policy can apply to offshore output, and tariff, but n ot tax, policy can be industry-specific. Recognizing that multinationa ls' production decisions are endogenous to the tax and tariff policies they face, we investigate how a government should tax (or subsidize) domestically owned firms and how government should set trade policy.