There are a number of ways in which the effects of tariffs differ from the effects of quotas. First, there are two important differences in their economic effects. One difference is that tariffs raise revenue for the government where quotas do not. Every time a good is imported under a quota system, tax is paid on it and the importing government benefits. By contrast, quotas simply keep products out without raising money for the government. ...
There are a number of ways in which the effects of tariffs differ from the effects of quotas. First, there are two important differences in their economic effects. One difference is that tariffs raise revenue for the government where quotas do not. Every time a good is imported under a quota system, tax is paid on it and the importing government benefits. By contrast, quotas simply keep products out without raising money for the government. The other difference is that quotas necessarily limit the amount of imports entering the country where tariffs do not. If consumers are willing to pay the tariff, goods can continue to enter where they could not if the government imposes a quota.
There are also two other differences. One is that a tariff does not encourage smuggling nearly as much as a quota does. If a quota is set and demand for a product suddenly goes up, the incentive to smuggle increases as well. This is because the quota remains low while demand increases and people will, presumably, be willing to pay more if someone can smuggle the good into the country. By contrast, if there is a tariff, imports can increase normally as demand rises. Secondly, a tariff does not promote corruption the way that a quota does. If there is a quota, the government will get to determine which company gets to export its goods. Companies may vie to be given permits and may well bribe officials to increase their chances of being chosen.
In these ways, there are differences between the impacts of a tariff and a quota even though the two are both trade barriers.
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