General equilibrium effects of import constraints under variable labour supply, public goods and income taxation

We consider a general equilibrium trade model of a small open economy with a representative consumer, where labour supply is variable, where imports a re restricted by a small tariff, a quota or a voluntary export restraint (V ER), and where alongside the production of two traded goods-one imported an d one exported-a pure public good is produced and funded through an income tax. Within this framework, we demonstrate, among other things, that under certain conditions, while a small tariff or quota reduces employment and we lfare, a VER may increase them. Thus, in the context of a small open econom y, contrary to standard results, in certain cases VERs may become the welfa re- and employment-dominant instrument over the alternative import restrict ions.