Domestic political competition and pro-cyclical import protection

James Lake and Maia Linask

No 1604, Departmental Working Papers from Southern Methodist University, Department of Economics

Abstract: Governments, especially in developing countries, routinely practice binding overhang (i.e. setting applied tariffs below binding WTO commitments) and frequently move applied tariffs for given products up and down over the business cycle. Moreover, applied tariffs are pro-cyclical in developing countries. We explain this phenomenon using a dynamic theory of lobbying between domestic interest groups. Applied tariffs are pro-cyclical when high-tariff interests (e.g. import-competing industries) capture the government these groups concede lower tariffs to low-tariff interest groups (e.g. exporting firms or firms using imported inputs) during recessions because recessions lower the opportunity cost of lobbying and thereby generate stronger lobbying threats.

Keywords: Binding overhang; lobbying; tariff bindings; applied tariffs (search for similar items in EconPapers)
JEL-codes: C73 D72 F13 (search for similar items in EconPapers)
Date: 2016-01
New Economics Papers: this item is included in nep-bec, nep-int and nep-pol
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Journal Article: Domestic political competition and pro-cyclical import protection (2016)
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