political economy of trade;inefficient redistribution;game theory;formal models describing why protection is used over other means of redistribution;Economics;Government Information;Political Science;Social Sciences (General);Business and Economics;Government Information and Law;Social Sciences;Political Science
While political scientists have often noted that trade protection is an inefficient way of redistributing income between parties, given that it destroys value relative to other redistributive mechanisms (such as domestic taxation), such scholars have not devoted much attention to grappling with the implications of this claim. This dissertation comprises three papers addressing the political implications of protection;;s inefficiency. Descriptions of these papers are as follows.Protection as a Commitment Problem: In this paper, I develop a dynamic model that demonstrates that commitment problems in the trade-lobbying process can account for the use of protection over more efficient means of redistribution. Many industries that are harmed by open trade have an incentive to lobby for protection over compensatory transfers because free trade has dynamic effects that reduce an industry;;s ability to lobby the government in the future. Thus, while both parties would prefer permanent transfers to protectionism, these transfers are subject to a commitment problem. I also explore the conditions under which efficient transfers may still be an important part of political bargains supporting freer trade. This paper therefore resolves an outstanding theoretical puzzle about the inefficiency of trade protection as a redistributive instrument, and provides a new interpretation of the compromise of ;;embedded liberalism;;.Screening for Losers:In this paper, I identify a new way in which trade institutions and their particular features can be valuable to governments: namely, that they can provide useful information about domestic political groups. While governments are responsible for the administration of most legal trade-related actions, the information that governments need to determine which actions to pursue is often the private information of the firms and interest groups that are lobbying for these actions, and there are significant incentives for such groups to misrepresent this information. This paper uses a formal model to demonstrate that governments can use the multitude of legal options available to them to screen between domestic groups for those with the strongest cases. This selection process can help to explain, amongst other things, why disputes pursued via the WTO have such a high rate of success (approximately 90%), and why trade remedies tend to be structured around meeting criteria instead of as ;;efficient breaches;; requiring compensation.Taxability and Trade Policy: The political economy of trade literature tends to conceive of the relationship between fiscal capacity and trade policy fairly simply: states that have limited fiscal capacity will be more likely to use tariffs to raise revenues given the lack of other means of doing so. This paper presents a model that complicates this story; what matters is not just overall levels of fiscal capacity, but the relative taxability of different domestic groups. In particular, while greater ability to tax the winners of freer trade makes freer trade more likely, greater ability to tax the losers of freer trade may actually make protectionism more likely. This follows because governments can use taxation to redistribute the revenues generated by any policy to better respond to the distributive politics game they face, provided that the revenues accrue to a party that is taxable. This generates a number of empirical implications for patterns of trade policy: for instance, we would expect trade policy to be biased towards factors, industries, and firm sizes that are easier to tax.
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