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Revenue Motives and Trade Liberalization

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  • Feldman, David H
  • Gang, Ira N

Abstract

Governments in more-developed economies partially compensate import-competing industries when world prices fall, i.e., they lean against the wind. Less-developed economies often liberalize in response to the same shock. We use a political-support maximization model with revenue motives to derive conditions under which a rational policymaker would respond to lower world prices by reducing tariff protection for an import-competing industry. An initial tariff that exceeds the maximum revenue level proves necessary but not sufficient for politically optimal liberalization following a fall in the world price of the importable good. Copyright 1996 by Blackwell Publishing Ltd.

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Bibliographic Info

Article provided by Wiley Blackwell in its journal Review of International Economics.

Volume (Year): 4 (1996)
Issue (Month): 3 (October)
Pages: 276-81

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Handle: RePEc:bla:reviec:v:4:y:1996:i:3:p:276-81

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Web page: http://www.blackwellpublishing.com/journal.asp?ref=0965-7576

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Cited by:
  1. Joshua Aizenman & Sang-Seung Yi, 1997. "Controlled Openness and Foreign Direct Investment," NBER Working Papers 6123, National Bureau of Economic Research, Inc.

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