Optimal Tariffs, Optimal Taxes and Shadow Prices

The objective of this paper is to illuminate the connections between the theory of commercial policy and the theory of optimal taxation. The standard theory of distortions, trade and welfare is presented in a framework that is more general than usual. Although the arguments used are mathematical they are not as rigorous as is usual in the literature on optimal taxation: the existence of optimal policies is always assumed, as is the differentiability of production and utility functions, supply and demand functions, and foreigners’ offer functions.