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Costly revenue-raising and the case for favoring import-competing industries

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  • Matschke, Xenia

Abstract

A standard finding in the political economy of trade policy literature is that we should expect export-oriented industries to attract more assistance than import-competing industries. In reality, however, trade policy is heavily biased toward supporting import industries. This paper shows within a standard protection for sale framework, how the costliness of raising revenue via taxation may make export subsidies less desirable and import tariffs more desirable. The model is then estimated and its predictions are tested using U.S. tariff data. An empirical estimate of the costliness of revenue-raising is also obtained.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 74 (2008)
Issue (Month): 1 (January)
Pages: 143-157

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Handle: RePEc:eee:inecon:v:74:y:2008:i:1:p:143-157

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Web page: http://www.elsevier.com/locate/inca/505552

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  1. Giovanni Maggi & Andres Rodriguez-Clare, 1998. "Import Peneteration and the Politics of Trade Protection," NBER Working Papers 6711, National Bureau of Economic Research, Inc.
  2. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
  3. Grossman, Gene M. & Helpman, Elhanan, 1995. "Trade Wars and Trade Talks," Scholarly Articles 3450062, Harvard University Department of Economics.
  4. Elhanan Helpman, 1995. "Politics and Trade Policy," NBER Working Papers 5309, National Bureau of Economic Research, Inc.
  5. Kyle Bagwell & Robert W. Staiger, 1997. "An Economic Theory of GATT," NBER Working Papers 6049, National Bureau of Economic Research, Inc.
  6. Giovanni Maggi & Pinelopi Koujianou Goldberg, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December.
  7. Lopez, Rigoberto A. & Matschke, Xenia, 2005. "Food Protection for Sale," Research Reports 25195, University of Connecticut, Food Marketing Policy Center.
  8. Kishore Gawande & Pravin Krishna & Michael J. Robbins, 2004. "Foreign Lobbies and US Trade Policy," NBER Working Papers 10205, National Bureau of Economic Research, Inc.
  9. Clinton Shiells & Robert Stern & Alan Deardorff, 1989. "Estimates of the elasticities of substitution between imports and home goods for the United States: Reply," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 125(2), pages 371-374, June.
  10. Susumu Imai & Hajime Katayama & Kala Krishna, 2006. "Protection for Sale or Surge Protection?," NBER Working Papers 12258, National Bureau of Economic Research, Inc.
  11. Phillip McCalman, 2004. "Protection for Sale and Trade Liberalization: an Empirical Investigation," Review of International Economics, Wiley Blackwell, vol. 12(1), pages 81-94, 02.
  12. Cadot, Olivier & Grether, Jean-Marie & Olarreaga, Marcelo, 2003. "India's Trade Policy For Sale: How Much? Who Buys?," CEPR Discussion Papers 4168, C.E.P.R. Discussion Papers.
  13. Keiko Kubota, 2005. "Fiscal Constraints, Collection Costs, And Trade Policies," Economics and Politics, Wiley Blackwell, vol. 17, pages 129-150, 03.
  14. Kishore Gawande & Usree Bandyopadhyay, 2000. "Is Protection for Sale? Evidence on the Grossman-Helpman Theory of Endogenous Protection," The Review of Economics and Statistics, MIT Press, vol. 82(1), pages 139-152, February.
  15. Ethier, Wilfred J., 2007. "The theory of trade policy and trade agreements: A critique," European Journal of Political Economy, Elsevier, vol. 23(3), pages 605-623, September.
  16. Theo Eicher & Thomas Osang, 2002. "Protection for Sale: An Empirical Investigation: Comment," American Economic Review, American Economic Association, vol. 92(5), pages 1702-1710, December.
  17. Matschke, Xenia N. & Sherlund, Shane M, 2003. "Do Labor Issues Matter In The Determination Of U.S. Trade Policy? An Empirical Reevaluation," Santa Cruz Department of Economics, Working Paper Series qt0sn637k8, Department of Economics, UC Santa Cruz.
  18. Matschke, Xenia, 2004. "Labor Market Rigidities and the Political Economy of Trade Protection," Santa Cruz Center for International Economics, Working Paper Series qt9gd146fx, Center for International Economics, UC Santa Cruz.
  19. Gawande, Kishore, 1995. "Are U.S. Nontariff Barriers Retaliatory? An Application of Extreme Bounds Analysis in the Tobit Model," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 677-88, November.
  20. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
  21. Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
  22. Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 138-60, February.
  23. Vousden,Neil, 1990. "The Economics of Trade Protection," Cambridge Books, Cambridge University Press, number 9780521346696.
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Cited by:
  1. Joseph Mai & Andrey Stoyanov, 2014. "The Effect of the Canada-US Free Trade Agreement on Canadian," Working Papers 2014_2, York University, Department of Economics.
  2. Imai, Susumu & Katayama, Hajime & Krishna, Kala, 2009. "Is protection really for sale? A survey and directions for future research," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 181-191, March.
  3. Susumu Imai & Hajime Katayama & Kala Krishna, 2007. "A Quantile Based Test of Protection for Sale Model," Working Papers 1132, Queen's University, Department of Economics.
  4. Per G. Fredriksson & Xenia Matschke & Jenny Minier, 2008. "For Sale: Trade Policy in Majoritarian Systems," Working papers 2008-20, University of Connecticut, Department of Economics.
  5. Manuel Amador & Kyle Bagwell, 2012. "Tariff Revenue and Tariff Caps," American Economic Review, American Economic Association, vol. 102(3), pages 459-65, May.
  6. Daniel Brou & Michele Ruta, 2012. "A Commitment Theory of Subsidy Agreements," CESifo Working Paper Series 3945, CESifo Group Munich.
  7. Djerdjian, Daron O., 2009. "Economies of scale and trade policy: The median voter model revisited," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 479-487, June.

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