| Can Duty-Drawbacks have a protectionist bias? Evidence from Mercosur (2007) | |||||||||||||||
Abstract | |||||||||||||||
| In a political-economy setting where tari s and duty drawbacks are endoge-nously chosen through industry lobbying, it is shown that full duty-drawbacks are granted to exporters who use imported intermediates in their production. This in turn decreases their incentives to counter-lobby against high tari on their inputs. In equilibrium, higher tari s will be observed on these goods. The creation of a regional block will change the political equilibrium. Duty-drawbacks will be eliminated on intra-regional exports, which in turn will lead to lower tari s for goods used as inputs by intra-regional exporters. Evidence from Mercosur suggests that the elimination of duty-drawbacks for intra-regional exports, led to increased counter-lobbying by users of intermediate products. In its absence the common external tari would have been on aver-age 3.5 percentage points (25 percent) higher. | |||||||||||||||
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