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Revenue Motives and Trade Liberalization

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  • Feldman, David H
  • Gang, Ira N

Abstract

Governments in more-developed economies partially compensate import-competing industries when world prices fall, i.e., they lean against the wind. Less-developed economies often liberalize in response to the same shock. We use a political-support maximization model with revenue motives to derive conditions under which a rational policymaker 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. Copyright 1996 by Blackwell Publishing Ltd.

Suggested Citation

  • Feldman, David H & Gang, Ira N, 1996. "Revenue Motives and Trade Liberalization," Review of International Economics, Wiley Blackwell, vol. 4(3), pages 276-281, October.
    • Handle: RePEc:bla:reviec:v:4:y:1996:i:3:p:276-81
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    Cited by:

    1. Joshua Aizenman & Sang‐Seung Yi, 1998. "Controlled Openness and Foreign Direct Investment," Review of Development Economics, Wiley Blackwell, vol. 2(1), pages 1-10, February.

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