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A Model of Influence on Trade Policy in a Computable General Equilibrium Model

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  • Franck Viroleau

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper aims at making explicit the micro foundations of the government's preference function in an influence-driven political economy model. It also addresses the behavior functions of domestic and foreign firms in their attempts to gain policy favors. These favors are granted by means of subsidies. In our model, the government simultaneously chooses three interdependent policy instruments under the political influence of domestic and foreign firms. Thus, we create a political market characterized by utility-maximizing and profit-maximizing behaviors of its actors, which takes place in a computable general equilibrium model. Endowed with these features, this model fills a gap in the literature. However, our results demonstrate that the model is only valid under a reasonable set of constraints on its parameters. Finally, this paper formally shows the key role of the subsidy elasticity of political cost in limiting the distortions created by the influence of interest groups.

Suggested Citation

  • Franck Viroleau, 2017. "A Model of Influence on Trade Policy in a Computable General Equilibrium Model," Working Papers hal-04141646, HAL.
    • Handle: RePEc:hal:wpaper:hal-04141646
    Note: View the original document on HAL open archive server: https://hal.science/hal-04141646
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    References listed on IDEAS

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    1. Baldwin, Robert E & Magee, Christopher S, 2000. "Is Trade Policy for Sale? Congressional Voting on Recent Trade Bills," Public Choice, Springer, vol. 105(1-2), pages 79-101, October.
    2. Stoyanov, Andrey, 2009. "Trade policy of a free trade agreement in the presence of foreign lobbying," Journal of International Economics, Elsevier, vol. 77(1), pages 37-49, February.
    3. Theo Eicher & Thomas Osang, 2002. "Protection for Sale: An Empirical Investigation: Comment," American Economic Review, American Economic Association, vol. 92(5), pages 1702-1710, December.
    4. Arye L. Hillman & Heinrich W. Ursprung, 2008. "Domestic Politics, Foreign Interests, and International Trade Policy," Springer Books, in: Roger D. Congleton & Kai A. Konrad & Arye L. Hillman (ed.), 40 Years of Research on Rent Seeking 2, pages 113-129, Springer.
    5. 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.
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