Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/26115
Authors: 
Blanchard, Emily J.
Willmann, Gerald
Year of Publication: 
2007
Series/Report no.: 
CESifo working paper 2070
Abstract: 
This paper analyzes the dynamics of trade policy reform under democracy. In an overlapping generations model, heterogeneous agents may acquire skills when young, thereby determining the skill composition of their cohort. Current and anticipated trade policies influence education decisions, and thus the identity of the median voter. We show that there may exist two political steady states: one protectionist and one liberal. Transition from the former to the latter can be achieved by government announcements, temporary educational subsidies, or (exogenous) tariff liberalization by trading partners, but not, in general, by transfer payments to adversely affected workers. We find additionally that reform is politically feasible only if the proposed liberalization is sufficiently large, suggesting that radical reform may be necessary for escaping a “protectionist rut.”
JEL: 
D72
E60
F13
F16
Document Type: 
Working Paper

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