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Inequality and the Relative Reliance on Tariffs

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  • Margarita Katsimi
  • Thomas Moutos

Abstract

In this paper we uncover the existence of a U‐shaped relationship between inequality and the relative reliance on tariff revenue, by estimating a cross‐sectional regression relating the ratio of the tariff rate over the tax rate to inequality and a set of control variables such as GDP per capita, openness, the degree of democracy, and area dummies. We explain this U‐shaped relationship by means of a Ricardian model of trade in vertically differentiated products between a developing country and the (developed) rest of the world. The model generates the U‐shaped relationship because the preferences of the political majority (as captured by the median voter model) are shaped not only by the influence of inequality on the desire for redistribution, but also by the influence of inequality on the relative size of the tax base on which income taxes and tariffs are applied.

Suggested Citation

  • Margarita Katsimi & Thomas Moutos, 2010. "Inequality and the Relative Reliance on Tariffs," Review of International Economics, Wiley Blackwell, vol. 18(1), pages 121-137, February.
    • Handle: RePEc:bla:reviec:v:18:y:2010:i:1:p:121-137
    DOI: 10.1111/j.1467-9396.2009.00873.x
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    References listed on IDEAS

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    2. Jorge Rojas-Vallejos & Stephen J. Turnovsky, 2017. "Tariff Reduction and Income Inequality: Some Empirical Evidence," Open Economies Review, Springer, vol. 28(4), pages 603-631, September.

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