Political Asymmetry and Common External Tariff in a Customs Union

FRB of St. Louis Working Paper No. 2007-038A

22 Pages Posted: 12 Sep 2007

See all articles by Subhayu Bandyopadhyay

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division; IZA Institute of Labor Economics; West Virginia University

Sajal Lahiri

Southern Illinois University Carbondale - Department of Economics

Suryadipta Roy

Lawrence University - Economics

Date Written: September 2007

Abstract

We present a three-nation model, where two of the nations are members of a Customs Union (CU) and maintain a common external tariff (CET) on the third (non-member) nation. The producing lobby is assumed to be union-wide and lobbies both governments 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, the weights reflecting the influence of the respective governments in the CU. A central finding of this paper is that the CET rises monotonically with the degree of asymmetry in the weights if the two countries are equally susceptible to lobbying. If the weights are the same, but the respective governments are asymmetric in their susceptibilities to lobbying, the CET also rises monotonically with this asymmetry. However, an increase in one type of asymmetry, in the presence of the other type of asymmetry, may reduce the CET.

Keywords: Asymmetry, Customs union, Common external tariff, Politics

JEL Classification: F13

Suggested Citation

Bandyopadhyay, Subhayu and Lahiri, Sajal and Roy, Suryadipta, Political Asymmetry and Common External Tariff in a Customs Union (September 2007). FRB of St. Louis Working Paper No. 2007-038A. Available at SSRN: https://ssrn.com/abstract=1012602 or http://dx.doi.org/10.2139/ssrn.1012602

Subhayu Bandyopadhyay (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
PO Box 442
St. Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

West Virginia University ( email )

Morgantown, WV 26506-6025
United States
304-293-7879 (Phone)
304-293-7061 (Fax)

Sajal Lahiri

Southern Illinois University Carbondale - Department of Economics ( email )

MC 415
1000 Faner Drive
Carbondale, IL 62901
United States

Suryadipta Roy

Lawrence University - Economics ( email )

Appleton, WI 54912
United States

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