Inequality and Relative Reliance on Tariffs: Theory and Evidence
In this paper we construct a Ricardian model of trade in vertically-differentiated products between a developing country and the (developed) rest of the world. Despite labour being the only factor of production in this model, tariffs (in addition to income taxes) have distributional consequences because the high-quality imported varieties are consumed only by high-income households. The model predicts a U-shaped relationship between income inequality and the median-voter’s preferred reliance on tariffs versus income taxes in order to effect the desired redistribution. Using data from 44 countries we test for the existence of this U-shaped relationship 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 find that the model’s predictions are supported by the data.
|Date of creation:||2005|
|Date of revision:|
|Contact details of provider:|| Postal: |
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo.de
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Mayer, Wolfgang & Riezman, Raymond G., 1990.
"Voter Preference for Trade Policy Instruments,"
722, California Institute of Technology, Division of the Humanities and Social Sciences.
- Wolfgang Mayer & Raymond Riezman, 1990. "Voter Preferences For Trade Policy Instruments," Economics and Politics, Wiley Blackwell, vol. 2(3), pages 259-273, November.
- Wolfgang Mayer & Raymond Riezman, 2013. "Voter Preferences for Trade Policy Instruments," World Scientific Book Chapters, in: International Trade Agreements and Political Economy, chapter 11, pages 169-183 World Scientific Publishing Co. Pte. Ltd..
- Persson, Torsten & Tabellini, Guido, 1994.
"Is Inequality Harmful for Growth?,"
American Economic Review,
American Economic Association, vol. 84(3), pages 600-621, June.
- Alesina, Alberto F & Rodrik, Dani, 1991.
"Distributive Politics and Economic Growth,"
CEPR Discussion Papers
565, C.E.P.R. Discussion Papers.
- Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
- Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
- Klaus Deininger & Lyn Squire, 1996.
"A New Data Set Measuring Income Inequality,"
CEMA Working Papers
512, China Economics and Management Academy, Central University of Finance and Economics.
- Rodrik, Dani, 1995. "Political economy of trade policy," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 28, pages 1457-1494 Elsevier.
- Creedy, John, 1977. "Pareto and the Distribution of Income," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 23(4), pages 405-11, December.
- Hwang, Jinyoung & Jung, Kun-Oh, 2002. "Initial asset inequality and tariff formation: a cross-country analysis," Economics Letters, Elsevier, vol. 76(3), pages 405-410, August.
- Jim Malley & Thomas Moutos, 2000.
"Vertical Product Differentiation and the Import Demand Function: Theory and Evidence,"
CESifo Working Paper Series
387, CESifo Group Munich.
- Jim Malley & Thomas Moutos, 2002. "Vertical product differentiation and the import demand function: theory and evidence," Canadian Journal of Economics, Canadian Economics Association, vol. 35(2), pages 257-281, May.
- Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
- Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 138-60, February.
- Bruce E. Hansen, 1996.
"Sample Splitting and Threshold Estimation,"
Boston College Working Papers in Economics
319., Boston College Department of Economics, revised 12 May 1998.
- Feentra, R.C. & Lewis, T.R., 1990.
"Distributing The Gains From Trade With Incomplete Information,"
352, California Davis - Institute of Governmental Affairs.
- Robert C. Feenstra & Tracy R. Lewis, 1991. "Distributing The Gains From Trade With Incomplete Information," Economics and Politics, Wiley Blackwell, vol. 3(1), pages 21-39, 03.
- Robert Feenstra & Tracy R. Lewis, 1990. "Distributing the Gains from Trade With Incomplete Information," NBER Working Papers 3277, National Bureau of Economic Research, Inc.
- Thomas Moutos, 2001. "Why Do Poor democracies Collect a Lot of Tariff Revenue?," Economics and Politics, Wiley Blackwell, vol. 13(1), pages 95-112, 03.
- Bowen, Harry P & Leamer, Edward E & Sveikauskas, Leo, 1987.
"Multicountry, Multifactor Tests of the Factor Abundance Theory,"
American Economic Review,
American Economic Association, vol. 77(5), pages 791-809, December.
- Harry P. Bowen & Edward E. Leamer & Leo Sveikauskas, 1986. "Multicountry, Multifactor Tests of the Factor Abundance Theory," NBER Working Papers 1918, National Bureau of Economic Research, Inc.
- Dixit, Avinash, 1985. "Tax policy in open economies," Handbook of Public Economics, in: A. J. Auerbach & M. Feldstein (ed.), Handbook of Public Economics, edition 1, volume 1, chapter 6, pages 313-374 Elsevier.
- Hongyi Li & Lyn Squire & Tao Zhang & Heng-fu Zou, 1999.
"A Data Set on Income Distribution,"
CEMA Working Papers
575, China Economics and Management Academy, Central University of Finance and Economics.
- Harms, Philipp & Zink, Stefan, 2003. "Limits to redistribution in a democracy: a survey," European Journal of Political Economy, Elsevier, vol. 19(4), pages 651-668, November.
- Torsten Persson & Guido Tabellini, 2002. "Political Economics: Explaining Economic Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661314, June.
- Hansen, John Mark, 1990. "Taxation and the political economy of the tariff," International Organization, Cambridge University Press, vol. 44(04), pages 527-551, September.
- Antonis Adam & Thomas Moutos, 2002. "The Political Economy of EU Enlargement: Or, Why Japan is not a Candidate Country?," CESifo Working Paper Series 704, CESifo Group Munich.
- Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-85, December.
- Casey B. Mulligan & Ricard Gil & Xavier Sala-i-Martin, 2004.
"Do democracies have different public policies than non-democracies?,"
0304-14, Columbia University, Department of Economics.
- Casey B. Mulligan & Ricard Gil & Xavier Sala-i-Martin, 2004. "Do Democracies Have Different Public Policies than Nondemocracies?," Journal of Economic Perspectives, American Economic Association, vol. 18(1), pages 51-74, Winter.
- Casey B. Mulligan & Xavier Sala-i-Martin & Ricard Gil, 2003. "Do Democracies Have Different Public Policies than Nondemocracies?," NBER Working Papers 10040, National Bureau of Economic Research, Inc.
- Dutt, Pushan & Mitra, Devashish, 2002. "Endogenous trade policy through majority voting: an empirical investigation," Journal of International Economics, Elsevier, vol. 58(1), pages 107-133, October.
- Romer, Thomas, 1975. "Individual welfare, majority voting, and the properties of a linear income tax," Journal of Public Economics, Elsevier, vol. 4(2), pages 163-185, February.
- Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 646-677, May.
When requesting a correction, please mention this item's handle: RePEc:ces:ceswps:_1457. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Julio Saavedra)
If references are entirely missing, you can add them using this form.