Revenue Motives and Trade Liberalization in an Endogenous Tariff Model

Ira Gang

Departmental Working Papers from Rutgers University, Department of Economics

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.

Keywords: policy; protection; reform; tariffs; trade liberalization (search for similar items in EconPapers)
JEL-codes: D72 D78 F13 (search for similar items in EconPapers)
Date: 1997-03-21
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Persistent link: https://EconPapers.repec.org/RePEc:rut:rutres:199412

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