Why Tariffs, Not Subsidies? A Search for Stylized Facts

Abstract

Barriers to trade are commonly viewed as a result of political systems in which politically influential groups benefit from and successfully lobby for protection. However, trade policy is a highly inefficient tool for redistributing income. Although recent theoretical research has focused on explanations of why (inefficient) trade barriers might be preferred to more direct means of redistribution, this research has been carried out with little empirical support. We address this gap in the literature with an exploratory cross-country empirical investigation of the economic factors correlated with a reliance on tariffs rather than subsidies, and find that the existing theoretical literature is consistent with the cross-country evidence.

Keywords: Endogenous protection, tariffs, subsidies

JEL Classification: F1, F13, D72