Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/185921
Authors: 
Brou, Daniel
Ruta, Michele
Year of Publication: 
2009
Citation: 
[Journal:] Swiss Journal of Economics and Statistics [ISSN:] 2235-6282 [Volume:] 145 [Year:] 2009 [Issue:] 4 [Pages:] 405-410
Abstract: 
This paper provides a simple model that highlights the political substitutability between import tariffs and production subsidies.1 When taxes are distortionary, political pressures by domestic interest groups representing the import competing sector induce the government to set inefficiently high tariffs and subsidies. If the government commits the tariff to a lower level - for instance by signing a binding commitment in a trade agreement - interest groups demand (and in the political equilibrium obtain) a larger production subsidy. This political substitutability between tariffs and subsidies is shown to reduce social welfare.
Subjects: 
tariffs
subsidies
lobbying
trade agreements
JEL: 
F13
D72
F55
H25
Persistent Identifier of the first edition: 
Creative Commons License: 
https://creativecommons.org/licenses/by/4.0/
Document Type: 
Article

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