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Revenue Motives and Trade Liberalization in an Endogenous Tariff Model

Author

Listed:
  • Ira N. Gang

    (Rutgers University)

Abstract

Governments in more developed economies partially compensate import-competing industries when world prices fall, i.e. they lean against the wind. In less developed economies we often observe liberalization in response to the same shock. We use a political-support maximization model with revenue motives to derive conditions under which a rational policy-maker would respond to lower world prices by reducing tariff protection for an import-competing industry. An initial tariff that exceeds the maximum revenue level proves necessary but not sufficient for politically optimal liberalization following a fall in the world price of the importable good.

Suggested Citation

  • Ira N. Gang, 1997. "Revenue Motives and Trade Liberalization in an Endogenous Tariff Model," Departmental Working Papers 199412, Rutgers University, Department of Economics.
    • Handle: RePEc:rut:rutres:199412
    as

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    More about this item

    Keywords

    policy; protection; reform; tariffs; trade liberalization;
    All these keywords.

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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