Tariff Rebate on Intermediate Inputs for Exportables in a Two-Period Model with Learning-from-Exporting

This paper develops a two-period, perfectly competitive model of international trade of a small open economy with the following features. The country is a net importer of an intermediate input, and there is an import tariff on this good in period 1. The exporting firms that use this intermediate input receive a rebate on its imports in period 1. There are transaction costs of exports in both periods. However, the transaction cost in period 2 is a decreasing function of the amount of exports made in period 1, implying some degree of learning-from-doing in exports. Net tax revenue is used to provide a public good. In this framework, we determine and characterise, inter alia, the optimal level of rebate given to the exporting sector on tariffs paid on imported intermediate inputs.