Endogenous protection in a framework with a monopolistic competitive market

Córdoba

Congreso; XLIII Reunión Anual de la Asociación Argentina de Economía Política; 2008

Asociación Argentina de Economía Política

The author studies the determination of a specific tariff in a setting of monopolistic competition, which considers the G-H political-support approach. Several key insights arise from taking into account a monopolistic competitive market structure. Firstly, in a small economy, the political process induces to an inefficient over-taxation on imports that generates a deadweight loss for the society as a whole. Secondly, there is a positive relationship between the mark-up variable and the endogenous tariff. Political variables affect the level of protection in a similar fashion as they do in a perfect competitive structure. Finally, the Ramsey rule applies.