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Working Paper 2007-038B

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"Political Asymmetry and Common External Tariff in a Customs Union"
by Subhayu Bandyopadhyay, Sajal Lahiri, and Suryadipta Roy

This paper examines the effect of political asymmetries in the formation of common external tariffs (CETs) in a customs union (CU). We do so by introducing cross-border lobbying and by endogenizing tariff formation in a political economic model for the determination of CETs. The latter allows us to consider asymmetries among the member nations in their susceptibilities to lobbying. We also consider asymmetries in the in influence of the member nations in the CU-wide decisionmaking. A central finding of this paper is that the CET rises monotonically with the degree of asymmetry in country influences if the two countries are equally susceptible to lobbying. If influences are the same, the CET also rises monotonically with degree of asymmetry in susceptibilities. These results hold irrespective of whether the lobby groups in the two member countries work cooperatively or noncooperatively.

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Category > International
Author > Subhayu Bandyopadhyay