Lobbying for a Common External Tariff from Inside and Out

Abstract

We consider the interactions between domestic lobbying and two types of cross-border lobbying in a Customs Union (CU). The two types of cross-border lobbying are (i) lobbying from firms in one CU country to the governments of other CU countries, and (ii) that from firms outside the CU. We focus on the determination of the common external tariff (CET) in a two-stage game-theoretic model. When firms within the CU cooperate in lobbying, a sufficient condition for the CET to be higher compared to the noncooperative case is that the CU firms' lobbying is a strategic substitute for the lobbying done by the non-union firms. Furthermore, the same strategic substitutabilty condition is sufficient to ensure that the CET must rise, when stricter regulations are imposed on lobbying from outside the CU.