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Reconciling Observed Tariffs and the Median Voter Model

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Author Info
Dhingra, Swati

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Abstract

We investigate the empirical validity of the median voter theory of trade policy. Mayer’s classic framework predicts that the optimal tariff is positive for a capital-abundant country and negative for a labor-abundant country (Mayer, 1984). However, import subsidies are rare so the tariff level prediction seems unrealistic. In this paper we examine two approaches to reconcile the theory with the lack of “pro-trade” bias across countries. First, we test the variation inequality-tariff prediction proposed by Dutt and Mitra (2002). We find support for it using human capital during the 1980s and 1990s. Using physical capital, the prediction is validated for the 1990s but not for the 1980s. Second, we extend the Mayer framework to a large country. The tariff level in a large country is the sum of the median voter component and a positive terms of trade component. We provide empirical evidence for this level prediction and a positive terms of trade component in the 1990s. Using human capital, we find that the median voter component is positive in capital-abundant countries and negative in labor-abundant countries. Consequently, positive terms of trade effects can overcome the median voter component in labor-abundant countries, reconciling theory with observed protectionism.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 892.

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Date of creation: 12 Jan 2006
Date of revision: 31 Jul 2007
Handle: RePEc:pra:mprapa:892

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Related research
Keywords: tariff; median voter; Mayer; large country; terms of trade;

Find related papers by JEL classification:
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
F50 - International Economics - - International Relations and International Political Economy - - - General
F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
F59 - International Economics - - International Relations and International Political Economy - - - Other
F53 - International Economics - - International Relations and International Political Economy - - - International Agreements and Observance; International Organizations

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  7. Pinelopi Koujianou Goldberg & Giovanni Maggi, 1999. "Protection for Sale: An Empirical Investigation," American Economic Review, American Economic Association, vol. 89(5), pages 1135-1155, December. [Downloadable!] (restricted)
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  15. Dutt, Pushan & Mitra, Devashish, 2002. "Endogenous trade policy through majority voting: an empirical investigation," Journal of International Economics, Elsevier, vol. 58(1), pages 107-133, October. [Downloadable!] (restricted)
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