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Political Stasis or Protectionist Rut? Policy Mechanisms for Trade Reform in a Democracy

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Author Info
Willmann, Gerald
Blanchard, Emily

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Abstract

This paper analyzes the dynamics of trade policy reform under democracy. In an overlapping generations model, heterogeneous agents may acquire skills when young, thereby determining the skill composition of their cohort. Current and anticipated trade policies influence education decisions, and thus the identity of the median voter. We show that there may exist two political steady states: one protectionist and one liberal. Transition from the former to the latter can be achieved by government announcements, temporary educational subsidies, or (exogenous) tariff liberalization by trading partners, but not, in general, by transfer payments to adversely affected workers. We find additionally that reform is politically feasible only if the proposed liberalization is sufficiently large, suggesting that radical reform may be necessary for escaping a ?protectionist rut.?

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File URL: http://hdl.handle.net/10419/22037
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Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2007,21.

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Date of creation: 2007
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Handle: RePEc:zbw:cauewp:5862

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Web page: http://www.wiso.uni-kiel.de/econ/

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Related research
Keywords: Political Economy; Trade Policy; Skill Acquisition; Politically Stable Policy Paths; Referenda;

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Find related papers by JEL classification:
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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