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Political Stasis or Protectionist Rut? Policy Mechanisms for Trade Reform in a Democracy

  • Willmann, Gerald
  • Blanchard, Emily J.

This paper analyzes the dynamics of trade policy reform under democracy. In an overlapping generations model, heterogeneous agents may acquire skills when young, thereby determining the skill composition of their cohort. Current and anticipated trade policies influence education decisions, and thus the identity of the median voter. We show that there may exist two political steady states: one protectionist and one liberal. Transition from the former to the latter can be achieved by government announcements, temporary educational subsidies, or (exogenous) tariff liberalization by trading partners, but not, in general, by transfer payments to adversely affected workers. We find additionally that reform is politically feasible only if the proposed liberalization is sufficiently large, suggesting that radical reform may be necessary for escaping a ?protectionist rut.?

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Paper provided by Christian-Albrechts-University of Kiel, Department of Economics in its series Economics Working Papers with number 2007,21.

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Date of creation: 2007
Date of revision:
Handle: RePEc:zbw:cauewp:5862
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  8. Carl Davidson & Steven J. Matusz, 2004. "An Overlapping-generations Model of Escape Clause Protection," Review of International Economics, Wiley Blackwell, vol. 12(5), pages 749-768, November.
  9. Marco Bassetto, 2008. "Political Economy of Taxation in an Overlapping-Generations Economy," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 11(1), pages 18-43, January.
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  11. Krishna, Pravin & Mitra, Devashish, 2005. "Reciprocated unilateralism in trade policy," Journal of International Economics, Elsevier, vol. 65(2), pages 461-487, March.
  12. Krusell, Per & Rios-Rull, Jose-Victor, 1996. "Vested Interests in a Positive Theory of Stagnation and Growth," Review of Economic Studies, Wiley Blackwell, vol. 63(2), pages 301-29, April.
  13. Maggi, Giovanni & Rodriguez-Clare, Andres, 2005. "A Political-Economy Theory of Trade Agreements," CEPR Discussion Papers 5321, C.E.P.R. Discussion Papers.
  14. Maggi, G & Rodriguez-Clare, A, 1996. "The Value of Trade Agreements in the Presence of Political Pressures," Papers 180, Princeton, Woodrow Wilson School - Public and International Affairs.
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  17. Krishna, Pravin & Mitra, Devashish, 2008. "Reciprocated unilateralism in trade reforms with majority voting," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 81-93, February.
  18. Magee, Christopher S.P. & Davidson, Carl & Matusz, Steven J., 2005. "Trade, turnover, and tithing," Journal of International Economics, Elsevier, vol. 66(1), pages 157-176, May.
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  20. Krusell, Per & Quadrini, Vincenzo & Rios-Rull, Jose-Victor, 1996. "Are consumption taxes really better than income taxes?," Journal of Monetary Economics, Elsevier, vol. 37(3), pages 475-503, June.
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