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Commercial Policy with Altruistic Voters

  • Julio J. Rotemberg

This paper considers a specific factor model with two sectors in which agents are altruistic towards domestic residents. I show that, even if the degree of altruism is small, direct democracy leads to commercial policies that are biased against trade as long as the mobile factor is unbiased in the sense of Jones and Ruffin (1977) and the income of the owners of the factor which is specific to the import competing sector is lower than the income of the owners of the other specific factor. Tariffs may be preferred to subsidies by the median voter if subsidies require that beneficiaries spend a fixed cost to demonstrate that they are entitled to these subsidies and there is heterogeneity in the size of producers. Lastly, I construct a model of indirect democracy where legislators can receive campaign contributions from potential lobbyists. Even if campaign contributions are positive in equilibrium, the tariffs that emerge from votes taken after lobbying can represent the wishes of the median voter. In this model, campaign contributions do not buy votes. Instead, consistent with what is claimed in the qualitative literature, they buy access to legislators' time. The model is also consistent with the evidence showing that campaign contributions and lobbying activity are directed mainly at legislators who already agree with their contributors and their lobbyists.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7984.

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Date of creation: Oct 2000
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Publication status: published as Rotemberg, Julio J. "Commercial Policy With Altruistic Voters," Journal of Political Economy, 2003, v111(1,Feb), 174-201.
Handle: RePEc:nbr:nberwo:7984
Note: ITI
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  1. Coate, Stephen, 1995. "Altruism, the Samaritan's Dilemma, and Government Transfer Policy," American Economic Review, American Economic Association, vol. 85(1), pages 46-57, March.
  2. Levy, Philip I., 1999. "Lobbying and international cooperation in tariff setting," Journal of International Economics, Elsevier, vol. 47(2), pages 345-370, April.
  3. Gene M. Grossman & Elhanan Helpman, 1992. "Protection For Sale," NBER Working Papers 4149, National Bureau of Economic Research, Inc.
  4. Mayer, Wolfgang & Riezman, Raymond G., 1987. "Endogenous choice of trade policy instruments," Journal of International Economics, Elsevier, vol. 23(3-4), pages 377-381, November.
  5. Hansson, Ingemar & Stuart, Charles, 1989. "Social Security as Trade among Living Generations," American Economic Review, American Economic Association, vol. 79(5), pages 1182-95, December.
  6. Stratmann, Thomas, 1992. "Are Contributions Rational? Untangling Strategies of Political Action Committees," Journal of Political Economy, University of Chicago Press, vol. 100(3), pages 647-64, June.
  7. 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.
  8. Snyder, James M, Jr, 1992. "Long-Term Investing in Politicians; or, Give Early, Give Often," Journal of Law and Economics, University of Chicago Press, vol. 35(1), pages 15-43, April.
  9. Mayer, Wolfgang, 1974. "Short-Run and Long-Run Equilibrium for a Small Open Economy," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 955-67, Sept./Oct.
  10. Pinelopi Koujianou Goldbe & Giovanni Maggi, 1997. "Protection for Sale: An Empirical Investigation," NBER Working Papers 5942, National Bureau of Economic Research, Inc.
  11. Stark, Oded, 1993. "Nonmarket transfers and altruism," European Economic Review, Elsevier, vol. 37(7), pages 1413-1424, October.
  12. Hochman, Harold M & Rodgers, James D, 1969. "Pareto Optimal Redistribution," American Economic Review, American Economic Association, vol. 59(4), pages 542-57, Part I Se.
  13. Ruffin, Roy & Jones, Ronald, 1977. "Protection and real wages: The neoclassical ambiguity," Journal of Economic Theory, Elsevier, vol. 14(2), pages 337-348, April.
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