Protectionist demands in globalization
This paper analyzes a small, open economy whose citizens have single-peaked preferences on the tariff rate for an import good. They publicly declare this rate to the government, which has discretion in implementing it. While the government has an incentive not to deviate too much from the publicly chosen tariff rate, its final choice is determined by bargaining with a foreign lobby that has a much lower optimal rate and offers monetary transfers in return for lower tariffs. The authors show that the expectation of foreign influence causes citizens to vote for a more protectionist tariff policy. Moreover, citizens’ behavior leads to an increase in transfers by the foreign lobby.
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