Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/94322
Authors: 
Gang, Ira N.
Year of Publication: 
1994
Series/Report no.: 
Working Papers, Department of Economics, Rutgers, The State University of New Jersey 1994-12
Abstract: 
Governments in more developed economies partially compensate import-competing industries when world prices fall, i.e. they lean against the wind. In less developed economies we often observe liberalization in response to the same shock. We use a political-support maximization model with revenue motives to derive conditions under which a rational policy-maker 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.
Subjects: 
policy
protection
reform
tariffs
trade liberalization
JEL: 
D72
D78
F13
Document Type: 
Working Paper

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