Abstract
The theory of tariffs is reexamined on the supposition that some dutiable imports or exports escape duty, that is, are smuggled. It is shown that if smuggling is competitive, if smugglers when caught are penalized by fine and if costs of transportation are the same for smuggled goods are legally-traded goods, then any tariff-ridden competitive equilibrium which exists in the absence of smuggling exists also in the face of smuggling, and conversely.
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