Trade Liberalization and Environmental Taxation in Federal Systems

The literature on trade liberalization and environment has not yet considered federal structures. In this paper, we show how the design of environmental policy in a federal system has implications for the effects of trade reform. Trade liberalization leads to a decline in pollution taxes, regardless of whether pollution taxes are set at the federal (centralized) or local (decentralized) level, and it increases social welfare. The effect under a decentralized system is smaller than if these taxes are set by the federal government, and pollution emissions therefore decline in this case. Moreover, majority bias interacts with trade liberalization if federal taxes are used.     

Trade policy in majoritarian systems: the case of the U.S.

Abstract We provide a theory of trade policy determination that incorporates the protectionist bias inherent in majoritarian systems, suggested by Grossman and Helpman (2005) . The prediction that emerges is that in majoritarian systems, the majority party favours industries located disproportionately in majority districts. We test this prediction using U.S. data on tariffs, Congressional campaign contributions, and industry location in districts represented by the majority party over the period 1989–97. We find evidence of a significant majority bias in trade policy: the benefit to being represented by the majority party appears at least as large in magnitude as the benefit to lobbying.     

Evidence on paid sick leave: Observations in times of crisis

A large number of governments in all regions of the world have recognised the need for paid sick leave although the benefit schedules vary widely. International data show that the incidence of paid sick leave is closely associated with overall economic developments. What are the patterns of paid sick leave and its incidence around the world, and how have these been affected by the recent economic crisis?     

Tariff and quota equivalence in the presence of asymmetric information

This paper investigates the equivalence of optimal import tariffs and quotas in a Cournot duopoly model when firms have more information about demand than the domestic government. I consider a screening model in which the government offers the domestic firm different contracts from which to choose. I show that the availability and cost of obtaining correct information from the firm depends upon the choice of trade policy instrument. Asymmetric information thus destroys the equivalence of tariffs and quotas, which prevails under complete information, and has a profound impact on how government, firms, and consumers rank different trade policy instruments.     

Costly revenue-raising and the case for favoring import-competing industries

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.     

Food Protection for Sale*

This article tests the Protection for Sale (PFS) model using detailed data from US food‐processing industries under alternative import‐demand specifications. All empirical results support the PFS model predictions and previous empirical work qualitatively. However, a surprising result is that we obtain weights between 2.6 and 3.6 for domestic welfare using import slopes or elasticities derived from domestic demand and supply functions. In contrast, results based on directly specified import demands (including the Armington model) yield the usual, unrealistically large estimates for the domestic welfare weight. We contend that this empirical paradox arises mainly because the explanatory variables tend to be extremely large for industries with low import ratios and/or low import elasticities (or slopes) resulting from relatively volatile import prices. The results with derived import parameters point to a much stronger role of campaign contributions within the PFS model than previously found.     

Antidumping as Strategic Trade Policy under Asymmetric Information

Trade liberalization under GATT/World Trade Organization (WTO) has been partly offset by an increase in antidumping protection, possibly due to the inclusion of sales below cost in the definition of dumping. This article investigates the domestic government's antidumping duty choice in an asymmetric information framework, in which the foreign firm's cost is observed by the domestic firm, but not by the government. We show that by designing a tariff schedule contingent on firms' cost reports and accompanied by a threat to collect additional information for report verification, the domestic government may not only be able to extract the true cost information, but also succeed in implementing the full‐information, governmental welfare‐maximizing duty. The antidumping framework within GATT/WTO may thus not only offer the means to pursue strategic trade policy disguised as fair trade policy, but it also helps overcome informational problems with regard to correctly determining the optimal strategic trade policy.     

Home Bias in US Beer Consumption

We apply the Berry, Levinsohn and Pakes market equilibrium model to data from 30 brands of beer sold in 12 US cities over 20 quarters (1988–1992) to estimate consumers' preference for beer characteristics as well as for their cultural regions of origin. Consumer heterogeneity is accounted for with respect to age and income. Overall, our data is comprised of 7200 beer brand observations and 13 920 hypothetical consumer observations. Empirical results indicate that there is, indeed, home bias with respect to foreign beers, although it varies with consumer age and income.