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|
|Contact details of provider:|| Postal: Poschingerstrasse 5, 81679 Munich|
Phone: +49 (89) 9224-0
Fax: +49 (89) 985369
Web page: http://www.cesifo-group.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.:
- 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..
- 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.
- Persson, T. & Tabellini, G., 1993.
"Is Inequality Harmful for Growth,"
537, Stockholm - International Economic Studies.
- 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 405-411, December.
- 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.
- 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.
- 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.
- 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 138-160, February.
- 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.
- Deininger, Klaus & Squire, Lyn, 1996.
"A New Data Set Measuring Income Inequality,"
World Bank Economic Review,
World Bank Group, vol. 10(3), pages 565-591, September.
- 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.
- 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.
- 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 914-927, October.
- Hansen, John Mark, 1990. "Taxation and the political economy of the tariff," International Organization, Cambridge University Press, vol. 44(04), pages 527-551, September.
- Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-985, December.
- Robert Feenstra & Tracy R. Lewis, 1990.
"Distributing the Gains from Trade With Incomplete Information,"
NBER Working Papers
3277, National Bureau of Economic Research, Inc.
- 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.
- Feentra, R.C. & Lewis, T.R., 1990. "Distributing The Gains From Trade With Incomplete Information," Papers 352, California Davis - Institute of Governmental Affairs.
- 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.
- Bruce E. Hansen, 2000.
"Sample Splitting and Threshold Estimation,"
Econometric Society, vol. 68(3), pages 575-604, May.
- 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.
- 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.
- 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.
- 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.
- Jim Malley & Thomas Moutos, 2000. "Vertical Product Differentiation and the Import Demand Function: Theory and Evidence," CESifo Working Paper Series 387, CESifo Group Munich.
- 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.
- Torsten Persson & Guido Tabellini, 2002. "Political Economics: Explaining Economic Policy," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661314, 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.
- 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.
- 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.
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: (Klaus Wohlrabe)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.