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Costly Revenue-Raising and the Case for Favoring Import-Competing Industries

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  • Xenia Matschke

    (University of Connecticut)

Abstract

A standard finding in the political economy of trade policy literature is that we should expect export-oriented industries to attract more assistance than import-competing industries. In reality, however, trade policy is heavily biased toward supporting import industries. This paper shows how the costliness of raising revenue via taxation makes trade subsidies less desirable and trade taxes more desirable in a standard protection for sale framework. The model is then estimated and its predictions tested using U.S. tariff data. An empirical estimate of the costliness of revenue-raising is also obtained.

Suggested Citation

  • Xenia Matschke, 2005. "Costly Revenue-Raising and the Case for Favoring Import-Competing Industries," Working papers 2005-28, University of Connecticut, Department of Economics, revised Apr 2007.
    • Handle: RePEc:uct:uconnp:2005-28
    Note: I thank the co-editor Kala Krishna and two anonymous referees for comments that greatly improved this paper. Thanks also go to Kishore Gawande and Daniel Trefler for providing data and to Emily Blanchard, Dhammika Dharmapala, Josh Ederington, Kishore Gawande, Susumu Imai, Mary Lovely, Giovanni Maggi, Devashish Mitra, Paul Pecorino, Bob Staiger, Gautam Tripathi, and Christian Zimmermann for helpful comments on an earlier version of this paper. The hospitality of Hans-Werner Sinn and the CES-ifo Institute at the Ludwig-Maximilians University in Munich, where part of this research was conducted, is gratefully acknowledged.
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    Cited by:

    1. Imai, Susumu & Katayama, Hajime & Krishna, Kala, 2013. "A quantile-based test of protection for sale model," Journal of International Economics, Elsevier, vol. 91(1), pages 40-52.
    2. Emanuel Ornelas, 2016. "Special and Differential Treatment for Developing Countries," CESifo Working Paper Series 5823, CESifo.
    3. Andrey Stoyanov, 2016. "Regional Trade Agreements and Cross-border Lobbying: Empirical Evidence from the Canada–US Free Trade Agreement Negotiations," Review of International Economics, Wiley Blackwell, vol. 24(1), pages 126-149, February.
    4. Paul Pecorino, 2008. "Import Protection Bias," Review of International Economics, Wiley Blackwell, vol. 16(2), pages 341-349, May.
    5. Imai, Susumu & Katayama, Hajime & Krishna, Kala, 2009. "Is protection really for sale? A survey and directions for future research," International Review of Economics & Finance, Elsevier, vol. 18(2), pages 181-191, March.
    6. Brou Daniel & Ruta Michele, 2013. "A Commitment Theory of Subsidy Agreements," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 13(1), pages 239-270, January.
    7. Joseph Mai & Andrey Stoyanov, 2015. "The effect of the Canada‐US Free Trade Agreement on Canadian multilateral trade liberalization," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(3), pages 1067-1098, August.
    8. Ram C. Acharya, 2018. "Endogenous trade policy in general equilibrium: An interaction of redistribution rule, trade openness, and labor market condition," Economics and Politics, Wiley Blackwell, vol. 30(3), pages 423-443, November.
    9. Djerdjian, Daron O., 2009. "Economies of scale and trade policy: The median voter model revisited," International Review of Economics & Finance, Elsevier, vol. 18(3), pages 479-487, June.
    10. Per G. Fredriksson & Xenia Matschke & Jenny Minier, 2011. "Trade policy in majoritarian systems: the case of the U.S," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 44(2), pages 607-626, May.
    11. Per G. Fredriksson & Xenia Matschke & Jenny Minier, 2008. "For Sale: Trade Policy in Majoritarian Systems," Working papers 2008-20, University of Connecticut, Department of Economics.
    12. Daniel Brou & Michele Ruta, 2009. "On the Political Substitutability between Tariffs and Subsidies," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 145(IV), pages 405-410, December.
    13. Manuel Amador & Kyle Bagwell, 2012. "Tariff Revenue and Tariff Caps," American Economic Review, American Economic Association, vol. 102(3), pages 459-465, May.
    14. Josh Ederington & Jenny Minier, 2008. "Reconsidering the empirical evidence on the Grossman-Helpman model of endogenous protection," Canadian Journal of Economics, Canadian Economics Association, vol. 41(2), pages 501-516, May.
    15. Xiangjun Ma & John McLaren, 2018. "A Swing-State Theorem, with Evidence," NBER Working Papers 24425, National Bureau of Economic Research, Inc.
    16. Md. Monirul Islam & Kazi Sohag & Faheem ur Rehman, 2022. "Do Geopolitical Tensions and Economic Policy Uncertainties Reorient Mineral Imports in the USA? A Fat-Tailed Data Analysis Using Novel Quantile Approaches," Mathematics, MDPI, vol. 11(1), pages 1-25, December.

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    More about this item

    Keywords

    Protection for sale; tariffs; trade policy; costly taxation; political economy;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions

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    This paper has been announced in the following NEP Reports:

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