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The Socially Optimal Import Tariff and Tax Credit for Ethanol with Farm Subsidies

Published online by Cambridge University Press:  15 September 2016

Harry de Gorter ,
David R. Just  and
Qinwen Tan
Harry de Gorter
Affiliation:
Department of Applied Economics and Management at Cornell University in Ithaca, New York
David R. Just
Affiliation:
Department of Applied Economics and Management at Cornell University in Ithaca, New York
Qinwen Tan
Affiliation:
Department of Applied Economics and Management at Cornell University in Ithaca, New York
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Abstract

We determine how the U.S. ethanol tax credit and import tariff affect the corn-ethanol-gasoline markets and how farm subsidies interact with these policies. We show how the ethanol tax credit and import tariff each uniquely affect the ethanol and gasoline prices. The ethanol import tariff alone increases the terms of trade in ethanol imports and corn exports, but decreases the terms of trade in gasoline imports and the tax costs of farm price supports. With price-contingent farm subsidies in place, the optimal tariff and tax credit will depend on the price level. When farm subsidy expenditures are high, import subsidies for ethanol may increase social welfare due to the substantial size of the fuel market relative to the corn market.

Keywords

biofuelsethanoltariffstax creditwelfare
Type
Contributed Papers
Information
Agricultural and Resource Economics Review , Volume 38 , Issue 1 , April 2009 , pp. 65 - 77
Copyright
Copyright © 2009 Northeastern Agricultural and Resource Economics Association 

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