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Rules Versus Discretion In Trade Policy: An Empirical Analysis

  • STAIGER, R.W.
  • TABELLINI, G.

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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Paper provided by California Los Angeles - Applied Econometrics in its series Papers with number 19.

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Length: 49 pages
Date of creation: 1990
Date of revision:
Handle: RePEc:fth:callaa:19
Contact details of provider: Postal:
UNIVERSITY OF CALIFORNIA AT LOS ANGELES, DEPARTMENT OF ECONOMICS, PROGRAM IN APPLIED ECONOMETRICS, LOS ANGELES CALIFORNIA 90024 U.S.A.

Phone: (310) 825 1011
Fax: (310) 825 9528
Web page: http://www.econ.ucla.edu/

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  1. Avinash Dixit, 1989. "Trade and Insurance with Imperfectly Observed Outcomes," The Quarterly Journal of Economics, Oxford University Press, vol. 104(1), pages 195-203.
  2. Robert W. Staiger & Guido Tabellini, 1988. "Rules and Discretion in Trade Policy," NBER Working Papers 2658, National Bureau of Economic Research, Inc.
  3. Lapan, Harvey E., 1988. "The Optimal Tariff, Production Lags and Time Consistency," Staff General Research Papers 10816, Iowa State University, Department of Economics.
  4. 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 258-72, May.
  5. White, Halbert, 1980. "A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity," Econometrica, Econometric Society, vol. 48(4), pages 817-38, May.
  6. 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.
  7. David Stafford Ball, 1967. "United States Effective Tariffs and Labor's Share," Journal of Political Economy, University of Chicago Press, vol. 75, pages 183.
  8. 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 473-91, June.
  9. Staiger, Robert W & Tabellini, Guido, 1987. "Discretionary Trade Policy and Excessive Protection," American Economic Review, American Economic Association, vol. 77(5), pages 823-37, December.
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