Trade Policies as Signals of Private Political Pressure

Hisashi Sawaki

Review of International Economics, 2007, vol. 15, issue 5, pages 878-889

Abstract: The situation of a home government facing political pressure from an exporting industry within its jurisdiction is considered. If a foreign government cannot directly observe such pressure, the home government has an incentive to understate it to induce foreign tariff reductions. In equilibrium, the home government will distort its first-period trade policy in a direction that the industry does not prefer (i.e. raising the export tax or reducing the export subsidy) in order to reveal the true pressure, as compared with a policy selected under complete information. Copyright © 2007 The Author; Journal compilation © 2007 Blackwell Publishing Ltd.

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