Targeted Export Subsidies As an Exercise of Monopoly Power

Abstract

A country with monopoly power in its export good normally benefits from an export tax. However, if it exports to two countries and the tax on exports to one is suboptimal, then it may be best to subsidize exports to the other. This is more likely the smaller is the import demand elasticity in the country being taxed suboptimally and the larger the elasticity in the other. It is also more likely the larger are exports to the first and the smaller are exports to the other. Finally, it is more likely the less elastic is home export supply.

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