Export Policy Shake-Up: Surprising Shifts from Tax to Subsidy Unveiled
The scientists looked at how different export policies affect prices in a market where companies compete with each other. They found that when there is intense competition among companies selling products, the best export policy can switch between taxes and subsidies depending on how similar the products are. If there are a moderate number of local suppliers, it is usually better to give subsidies to exports if companies compete by setting prices (like in a store sale) but to put a tax if they competitively set quantities (like limiting the number of products produced). The scientists also compared which system is better for the overall welfare - when companies set prices or quantities.