Rules and discretion in trade policy
AbstractWe argue in this paper that the second-best nature of trade-policy intervention makes it likely that the issue of time consistency viii be an important consideration in determining both the extent and the efficacy of such intervention in most environments. The point is seen most directly by noting that a tariff is both a tax on consumers and a subsidy to producers of the import-competing good. Since first-best intervention typically calls for targeting each distortion with a separate tax/subsidy, the tariff will be a more effective policy tool if its consumption tax aspect can be separated from its production subsidy dimension. Consequently, if production decisions are made prior to consumption decisions, a government with sufficient policy flexibility will be tempted to surprise producers with policies other than those announced in an effort to make this separation. This leads optimal trade policy intervention to be time-inconsistent in a wide range of environments. We explore this idea in general terms and illustrate the results with specific examples.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal European Economic Review.
Volume (Year): 33 (1989)
Issue (Month): 6 (July)
Contact details of provider:
Web page: http://www.elsevier.com/locate/eer
Other versions of this item:
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Dixit, Avinash, 1987. "Trade and insurance with moral hazard," Journal of International Economics, Elsevier, vol. 23(3-4), pages 201-220, November.
- Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
- Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-37, December.
- Glazer, Amihai & Ranjan, Priya, 2007. "Trade protection to reduce redistribution," European Journal of Political Economy, Elsevier, vol. 23(3), pages 790-805, September.
- Harry Flam & Robert W. Staiger, 1989.
"Adverse Selection in Credit Markets and Infant Industry Protection,"
NBER Working Papers
2864, National Bureau of Economic Research, Inc.
- Flam, H. & Staiger, R.W., 1989. "Adverse Selection In Credit Markets And Infant Industry Protection," Papers 432, Stockholm - International Economic Studies.
- Pao-Li Chang & Myoung-Jae Lee, 2007.
"The WTO Trade Effect,"
06-2007, Singapore Management University, School of Economics.
- Pao-li Chang & Myoung-jae Lee, 2007. "The WTO Trade Effect," Trade Working Papers 22063, East Asian Bureau of Economic Research.
- Pao-Li Chang & Myoung-Jae Lee, 2010. "The WTO Trade Effect," Working Papers 31-2010, Singapore Management University, School of Economics.
- Pao-Li Chang¤ & Myoung-Jae Lee, 2008. "The WTO Trade Effect," DEGIT Conference Papers c013_027, DEGIT, Dynamics, Economic Growth, and International Trade.
- Peter Welzel, 1992. "A note on the time inconsistency of strategic trade policy," Open Economies Review, Springer, vol. 3(2), pages 203-214, June.
- McLaren, John, 1998. "Consequences of discretion in the formation of commodities policy," Journal of Public Economics, Elsevier, vol. 69(3), pages 347-370, September.
- Basu, Arnab K. & Chau, Nancy H., 1999. "Adverse selection, asymmetric information, and foreign investment policies," International Review of Economics & Finance, Elsevier, vol. 8(3), pages 239-252, September.
- Gervais, Jean-Philippe & Lapan, Harvey E., 2002.
"Time consistent export quotas in an oligopolistic world market,"
Journal of International Economics,
Elsevier, vol. 56(2), pages 445-463, March.
- Gervais, Jean-Philippe & Lapan, Harvey E., 2002. "Time Consistent Export Quotas in an Oligopolistic World Market," Staff General Research Papers 5186, Iowa State University, Department of Economics.
- Richard A. Jensen & Marie Thursby, 1990.
"Tariffs with Private Information and Reputation,"
NBER Working Papers
2959, National Bureau of Economic Research, Inc.
- Bagwell,K. & Staiger,R.W., 2000.
19, Wisconsin Madison - Social Systems.
- Žigić, Krešimir, 2011. "Does a ‘non-committed’ government always generate lower social welfare than its ‘committed’ counterpart? Strategic trade policy when consumer surplus matters," Journal of Comparative Economics, Elsevier, vol. 39(4), pages 533-556.
- Simon Schropp, 2007. "Revisiting the "Compliance-vs.-Rebalancing" Debate in WTO Scholarship a Unified Research Agenda," IHEID Working Papers 29-2007, Economics Section, The Graduate Institute of International Studies, revised Dec 2007.
- Kresimir Zigic, 2010. "Second-Best Trade Policies, R&D Spillovers and Government (In)ability to Precommit in an Intra-Industry Trade Framework," CERGE-EI Working Papers wp427, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.