Reconciling Observed Tariffs and the Median Voter Model

Abstract

Median voter theory applied to trade policy predicts positive tariffs in capital‐abundant countries and negative tariffs in labor‐abundant countries. Negative tariffs are rare, and this paper reconciles the median voter theory with observed protectionism across countries. By considering large countries, I show the optimal tariff is a sum of the median voter component and a positive term of trade component. Positive terms of trade effects raise tariffs in all countries, and can overcome the negative median voter component in labor‐abundant countries. Testing the tariff prediction with cross‐section and panel data from the 1990s, I show the median voter component is negative in labor‐abundant countries and positive in capital‐abundant countries. As expected, terms of trade effects raise tariffs across all countries and are stronger among nonmembers of the WTO.