A structural model of entry and fiscal policy is presented. It shows that taxation of variable production costs can increase product prices, lower competition, and reduce the availability of new products in small markets. The model's test is based on a unique nationwide fiscal experiment. We...

Several developing countries impose high tariffs, directly or indirectly, on imports of manufactured goods such as vehicles and machinery. In many cases governments argue that they need such policies to protect domestic manufacturing industries from foreign competition while simultaneously...