The Theory of Variable Levies.

This paper develops an analytical framework for evaluating the policy of variable levies and assessing its effects on the country's trade, welfare, income distribution, b alance of payments, and fiscal budget. The analysis indicates that th e instability in domestic supply and world prices may justify certain measures of government interventions and trade restrictions; and app ropriately designed variable levies will not only insulate the econom y from the external instability, but may also raise the country's wel fare. Instability thus adds another dimension to the familiar "optim al tariff" argument. Copyright 1987 by Royal Economic Society.