INCOME-DISTRIBUTION AND THE CONTRACTIONARY EFFECT OF PROTECTION - A THEORETICAL-ANALYSIS

In terms of a simple model we show that the removal of a tariff from a competing foreign brand is likely to expand the size of the domestic industry when income disparities exist. A tariff increases the profits of the local monopolist but is capable of cutting down the size of th e local industry. After providing the general theoretical condition, w e construct an example (from a class of examples) where such an outcom e holds in equilibrium.