 Why Does the WTO Prohibit Export Subsidies But Not Import Tariffs?Tanapong Potipiti and Wisarut Suwanprasert No 119, PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research Abstract: We develop a three-stage lobbying game to explain why the WTO prohibits export subsidies but not import tariffs. In this model, the government chooses trade policies (i.e., import tariffs or export subsidies) to maximize a weighted sum of social welfare and lobbying contributions. We argue that the economic rents from export subsidies cannot be contained exclusively within lobby groups because new capitalists, who will enter the growing export sector, freely benefit from export subsidies without paying political contributions at the time of lobbying. In the contracting import-competing industries, no new entrants erode the protection rents from tariffs. Therefore, the government receives large political contributions by protecting these import-competing industries. We show that, given that capital reallocation is costly, when the free-rider problem is severe the government will sign a trade agreement that prohibits only export subsidies. Keywords: WTO; Export Subsidy; Import Tariff; Trade Negotiations (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:pui:dpaper:119 Ordering information: This working paper can be ordered from Access Statistics for this paper More papers in PIER Discussion Papers from Puey Ungphakorn Institute for Economic Research Contact information at EDIRC. |
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