Revenue Motives and Trade Liberalization
Governments in more-developed economies partially compensate import-competing industries when world prices fall, i.e., they lean against the wind. Less-developed economies often liberalize in response to the same shock. We use a political-support maximization model with revenue motives to derive conditions under which a rational policymaker would respond to lower world prices by reducing tariff protection for an import-competing industry. An initial tariff that exceeds the maximum revenue level proves necessary but not sufficient for politically optimal liberalization following a fall in the world price of the importable good. Copyright 1996 by Blackwell Publishing Ltd.
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Volume (Year): 4 (1996)
Issue (Month): 3 (October)
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