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Enlargement and Common External Tariff in a Political-Economic Model of Customs UnionSubhayu BandyopadhyayFederal Reserve Bank of St. Louis - Research Division Sajal LahiriSouthern Illinois University Carbondale - Department of Economics Suryadipta RoyLawrence University - Economics June 30, 2008 Abstract: We present a model with three blocks of nations: two of the blocks are members of a Customs Union (CU) and maintain a common external tariff (CET) on the third (non member). One of the member blocks is a block of new entrants. The producing lobby is assumed to be union-wide and lobbies governments of both blocks to influence the CET. The CET is determined jointly by the CU. We follow the political support function approach, where the CU seeks to maximize a weighted sum of the constituents' payoff functions. In this framework, we find the relationship between the CET and the average level of capital stock owned by the protected sector in the block of new entrants. We find that the CET is unambiguously larger if the new entrants have a larger stock of capital.
Number of Pages in PDF File: 18 Keywords: Enlargement, Customs union, Common external tariff, Politics JEL Classification: F13 working papers seriesDate posted: July 1, 2008Suggested CitationContact Information
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