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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 how the costliness of raising revenue via taxation makes trade subsidies less desirable and trade taxes more desirable in a standard protection for sale framework. The model is then estimated and its predictions 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. 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.
  2. Rigoberto A. Lopez & Xenia Matschke, 2005. "Food Protection for Sale," Food Marketing Policy Center Research Reports 085, University of Connecticut, Department of Agricultural and Resource Economics, Charles J. Zwick Center for Food and Resource Policy.
  3. Imai, Susumu & Katayama, Hajime & Krishna, Kala, 2009. "Protection for sale or surge protection?," European Economic Review, Elsevier, vol. 53(6), pages 675-688, August.
  4. 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.
  5. Kishore Gawande & Pravin Krishna & Michael J. Robbins, 2004. "Foreign Lobbies and US Trade Policy," NBER Working Papers 10205, National Bureau of Economic Research, Inc.
  6. Grossman, Gene & Helpman, Elhanan, 1993. "Trade Wars and Trade Talks," CEPR Discussion Papers 806, C.E.P.R. Discussion Papers.
  7. Grossman, Gene & Helpman, Elhanan, 1993. "Protection for Sale," CEPR Discussion Papers 827, C.E.P.R. Discussion Papers.
  8. 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.
  9. Vousden,Neil, 1990. "The Economics of Trade Protection," Cambridge Books, Cambridge University Press, number 9780521346696, October.
  10. 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.
  11. Elhanan Helpman, 1995. "Politics and Trade Policy," NBER Working Papers 5309, National Bureau of Economic Research, Inc.
  12. Matschke, Xenia, 2004. "Labor Market Rigidities and the Political Economy of Trade Protection," Santa Cruz Department of Economics, Working Paper Series qt9gd146fx, Department of Economics, UC Santa Cruz.
  13. Giovanni Maggi & Andres Rodriguez-Clare, 1998. "Import Peneteration and the Politics of Trade Protection," NBER Working Papers 6711, National Bureau of Economic Research, Inc.
  14. Kubota, Keiko, 2000. "Fiscal constraints, collection costs, and trade policies," Policy Research Working Paper Series 2366, The World Bank.
  15. 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.
  16. 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.
  17. Kyle Bagwell & Robert W. Staiger, 1997. "An Economic Theory of GATT," NBER Working Papers 6049, National Bureau of Economic Research, Inc.
  18. 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.
  19. Matschke, Xenia N. & Sherlund, Shane M, 2003. "Do Labor Issues Matter In The Determination Of U.S. Trade Policy? An Empirical Reevaluation," Santa Cruz Center for International Economics, Working Paper Series qt82k4x4f5, Center for International Economics, UC Santa Cruz.
  20. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
  21. 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.
  22. Pinelopi Koujianou Goldbe & Giovanni Maggi, 1997. "Protection for Sale: An Empirical Investigation," NBER Working Papers 5942, National Bureau of Economic Research, Inc.
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Cited by:
  1. 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.
  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. Brou Daniel & Ruta Michele, 2013. "A Commitment Theory of Subsidy Agreements," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 239-270, May.
  4. Manuel Amador & Kyle Bagwell, 2012. "Tariff Revenue and Tariff Caps," American Economic Review, American Economic Association, vol. 102(3), pages 459-65, May.
  5. 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.
  6. 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.
  7. 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.

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