RANKING THE 0P’TIMUM TARIFF AND THE MA.UMUM

This note uses a two-commodit:y model to demonstrate hat if(l) ttte tarif revenue is given to the private sector, (2) the home trade indifference curves are strictly concave and (3) the foreign &er CUHW has a continuous first derivative, then the maximum revenue tarifl will exceed the optimum tar@? 2. Can the maximum revenue and optimum tariflk be the same? Throughout he analysis, we assume that th.e home country produces and consumes two goods. Fig. 1 shows the quantity iof home exports on the vertical axis with the quantity of home imports on the horizontal F denotes the foreign offer curve, and I * is the home trade indifference curve which is tangent o it at Q*, so that Q * is the equilibrium trading point gienerated bythe optimum home tariff: To determine the taiff which maximizes revenue measured in units of the exportable when the tariff revenue is given to the private sector9 we hold tariff revenue constant a”t OX while pivoting the internal price line about X, where the slope of this line is denoted byp and shows the relative price of the import faced by the private sector, i.e. the internal relati.ve price of the import. Its points o