Tariffs and Income Distribution under Domestic Monopoly

This paper investigates the impact of protective tariff on the distribution of income in a Ricardo-Viner model that admits product market monopoly. Monopolistic producer is assumed to own capital empolyed in the industry and therefore earn all nonwage income in the form of rental and superprofits. In this model, an increase in the relative price of importable good caused by an increase in tariff rate may raise the real wage of labor and the real income of the monopolist in terms of either good, and may thus lead to a possible resolution of the inter-group conflict of interests within the protected industry.