Tariff Determination: A Model Of Political Economy

Endogenous theory of trade policy is a theory that try to explain a country’s tradepolicy with the methods of new political economy. In the previous study of tariffdetermination, the income of different groups is often fixed, and the governmentalways maximize the interests of all parties. However, in reality, businesses andconsumers will exert influence on policy making, for example, the government inpolicy making would be subjected to external interest groups that different groups usethe lobby or pressure group to influence policy making. Here, we attempt to describethe effects of that behavior on tariff policy making.If the government’ decision of tariff was subjected to different interest groups,the objective function of its form will be changed. In other words, the weights ofdifferent interest groups should be different..In the establishment of a baseline model,under different institutional environment and market structure conditions, we studythe effect of tariff change on welfare. The article tries to explain that, when theinterest groups make the decision of tariff, it could not determine the level of tariff,what it could do is only to change the rule of the making process of tariff. Thispaper will regard "the effect of interest group on trade rules "as" the constraintsgovernment objective function subject to ".The main conclusion of the article is, when we do not considered taxdistribution, the greater weight enterprises have, the higher the tariffs is. Conversely,the greater weight the public have, the smaller the tariff is. And it is in line with thelogic of the reality, in which classes that have greater power are always in accordancewith their own interests to influence the domestic policy.When we treat the tariff income as the transfer payment assigned to the twogroup of interest, two questions will rise. First, when the set of financial tool expand,it is not necessarily conducive to the allocation of resources, and also does notnecessarily increase the welfare of two interest groups. That is to say, introducing thetransferring mechanisms has no effect on the total social welfare. Every interest groupmay not be able to obtain the benefits from the redistribution. Secondly, after theintroduction of this distribution, the preferences of interest groups on the tariff policy changes, but the relation of weights and tariff is not affected.