Impacts of ideology, inequality, lobbying, and public finance

Barring very few exceptions, international trade has never and nowhere been free, even though only under extraordinary circumstances are deviations from free trade optimal. To explain this puzzle, an entire literature on the political economy of trade policy has emerged over the last three decades. In this literature, one common feature is that trade policies are chosen not with the aim of maximizing national economic efficiency and aggregate welfare, but set by politicians and policy makers whose objective functions diverge from aggregate welfare. Trade policies, in this view, are often used as indirect tools to redistribute income to certain targeted groups. The identity of these groups depends on (a) the type of political economy framework (lobbying or majority voting) assumed, (b) the actual economic, political, and geographic characteristics of the various sectors in the economy that determine which of them are politically organized, and (c) the political and economic ideology of the government. The objective of this chapter is to explain both the cross-country variations in agricultural protection and the within-country evolution of this protection over time. The general trend has been an increase in agricultural protection in developed countries over time as their per capita incomes have increased. This protection has taken the form of tariff and nontariff barriers on imports plus substantial subsidies provided by governments to their farmers. While membership in the GATT/WTO has attempted to control the growth of such protection in developed countries, it has so far not succeeded in eliminating or reducing it.