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Rules versus Discretion in Trade Policy: An Empirical Analysis

In: Empirical Studies of Commercial Policy

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  • Robert W. Staiger
  • Guido Tabellini

Abstract

We test empirically for evidence that government tariff-setting behavior depends on the degree of discretion with which policy-makers are endowed. We do this by studying government tariff choices under two distinct environments. One environment is that of tariffs set under the Escape Clause (Section 201 of the U.S. Trade Act of 1974). We argue that these decisions afford the government with ample opportunity to reoptimize, and with correspondingly little ability to commit. The other environment is the Tokyo Round of GATT negotiations and the determination of the set of exclusions from the general formula cuts. We argue that these decisions provided the government with a much diminished opportunity to reoptimize, and with a correspondingly greater ability to commit. Comparing decisions made in these two environments allows us to ask whether the degree of policy discretion has a measurable impact on trade policy decisions. Our findings suggest that it does.
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Suggested Citation

  • Robert W. Staiger & Guido Tabellini, 1991. "Rules versus Discretion in Trade Policy: An Empirical Analysis," NBER Chapters,in: Empirical Studies of Commercial Policy, pages 11-46 National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberch:6707
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    1. Avinash Dixit, 2005. "Trade And Insurance With Imperfectly Observed Outcomes," World Scientific Book Chapters,in: An Inframarginal Approach To Trade Theory, chapter 5, pages 75-84 World Scientific Publishing Co. Pte. Ltd..
    2. Jonathan Eaton & Gene M. Grossman, 1985. "Tariffs as Insurance: Optimal Commercial Policy When Domestic Markets Are Incomplete," Canadian Journal of Economics, Canadian Economics Association, vol. 18(2), pages 258-272, May.
    3. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-838, May.
    4. repec:cup:apsrev:v:84:y:1990:i:01:p:21-46_19 is not listed on IDEAS
    5. Lapan, Harvey E, 1988. "The Optimal Tariff, Production Lags, and Time Consistency," American Economic Review, American Economic Association, vol. 78(3), pages 395-401, June.
    6. Staiger, Robert W. & Tabellini, Guido, 1989. "Rules and discretion in trade policy," European Economic Review, Elsevier, vol. 33(6), pages 1265-1277, July.
    7. Richard E. Caves, 1976. "Economic Models of Political Choice: Canada's Tariff Structure," Canadian Journal of Economics, Canadian Economics Association, vol. 9(2), pages 278-300, May.
    8. David Stafford Ball, 1967. "United States Effective Tariffs and Labor's Share," Journal of Political Economy, University of Chicago Press, vol. 75, pages 183-183.
    9. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-837, December.
    10. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
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