Pre‐Commitment Mechanism and Policy Credibility in African Trade Reform
15 Pages Posted: 29 Jan 2016
Date Written: February 2001
In the absence of a binding pre‐commitment mechanism, a government has an incentive to renege on announced policy. This is a well‐established result in the literature. The paper applies this theory to tariff policy by developing a two‐game model to analyze the credibility of government tariff reform announcements. The pre‐commitment solution is subgame‐imperfect; therefore, government’s announcement of tariff reforms is time‐inconsistent. Using a sample of African countries operating under IMF structural adjustment programs, the study finds only weak evidence that countries implemented their announced tariff reforms. However, SAP agreements seem to enhance private sector confidence in government reforms.
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