Impacts of Ideology, Inequality, Lobbying, and Public Finance

Barring very few exceptions, international trade has never and nowhere been free, even though only under extraordinary circumstances are deviations from free trade optimal. To explain this puzzle, an entire literature on the political economy of trade policy has emerged over the last three decades. In this literature, one common feature is that trade policies are chosen not with the aim of maximizing national economic efficiency and aggregate welfare, but set by politicians and policy makers whose objective functions diverge from aggregate welfare. Trade policies, in this view, are often used as indirect tools to redistribute income to certain targeted groups. The identity of these groups depends on (a) the type of political economy framework (lobbying or majority voting) assumed, (b) the actual economic, political, and geographic characteristics of the various sectors in the economy that determine which of them are politically organized, and (c) the political and economic ideology of the government…