A general theory of cross-subsidization due to infra-marginal support is developed. Two sources of output distortion are identified: exit deterrence and extra-marginal output. Some firms would not be in business without the subsidy. Cost savings due to declining average costs are always greater...

This paper analyzes the impact of an ethanol import tariff in conjunction with a consumption mandate and tax credit. A tax credit alone acts as a subsidy to ethanol producers, equally benefiting exporters like Brazil. If an import tariff is imposed to offset the tax credit, world prices of...