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Costly Revenue-Raising and the Case for Favoring Import-Competing Industries

  • Xenia Matschke

    (University of Connecticut)

A standard finding in the political economy of trade policy literature is that we should expect export-oriented industries to attract more assistance than import-competing industries. In reality, however, trade policy is heavily biased toward supporting import industries. This paper shows how the costliness of raising revenue via taxation makes trade subsidies less desirable and trade taxes more desirable in a standard protection for sale framework. The model is then estimated and its predictions tested using U.S. tariff data. An empirical estimate of the costliness of revenue-raising is also obtained.

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Paper provided by University of Connecticut, Department of Economics in its series Working papers with number 2005-28.

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Length: 26 pages
Date of creation: Jun 2005
Date of revision: Apr 2007
Handle: RePEc:uct:uconnp:2005-28
Note: I thank the co-editor Kala Krishna and two anonymous referees for comments that greatly improved this paper. Thanks also go to Kishore Gawande and Daniel Trefler for providing data and to Emily Blanchard, Dhammika Dharmapala, Josh Ederington, Kishore Gawande, Susumu Imai, Mary Lovely, Giovanni Maggi, Devashish Mitra, Paul Pecorino, Bob Staiger, Gautam Tripathi, and Christian Zimmermann for helpful comments on an earlier version of this paper. The hospitality of Hans-Werner Sinn and the CES-ifo Institute at the Ludwig-Maximilians University in Munich, where part of this research was conducted, is gratefully acknowledged.
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  1. Eric J. Bartelsman & Wayne Gray, 1996. "The NBER Manufacturing Productivity Database," NBER Technical Working Papers 0205, National Bureau of Economic Research, Inc.
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  4. Lopez, Rigoberto A. & Matschke, Xenia, 2005. "Food Protection for Sale," Research Reports 25195, University of Connecticut, Food Marketing Policy Center.
  5. Matschke, Xenia N. & Sherlund, Shane M, 2003. "Do Labor Issues Matter In The Determination Of U.S. Trade Policy? An Empirical Reevaluation," Santa Cruz Department of Economics, Working Paper Series qt0sn637k8, Department of Economics, UC Santa Cruz.
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  8. Gawande, Kishore, 1995. "Are U.S. Nontariff Barriers Retaliatory? An Application of Extreme Bounds Analysis in the Tobit Model," The Review of Economics and Statistics, MIT Press, vol. 77(4), pages 677-88, November.
  9. Vousden,Neil, 1990. "The Economics of Trade Protection," Cambridge Books, Cambridge University Press, number 9780521346696, October.
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  20. Trefler, Daniel, 1993. "Trade Liberalization and the Theory of Endogenous Protection: An Econometric Study of U.S. Import Policy," Journal of Political Economy, University of Chicago Press, vol. 101(1), pages 138-60, February.
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  23. Cadot, Olivier & Grether, Jean-Marie & Olarreaga, Marcelo, 2003. "India's Trade Policy For Sale: How Much? Who Buys?," CEPR Discussion Papers 4168, C.E.P.R. Discussion Papers.
  24. Devashish Mitra & Dimitrios D. Thomakos & Mehmet A. Ulubaşoglu, 2002. ""Protection For Sale" In A Developing Country: Democracy Vs. Dictatorship," The Review of Economics and Statistics, MIT Press, vol. 84(3), pages 497-508, August.
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