Question

Explain how a tariff policy is chosen in an electoral competition.

Answer 1

Political parties usually base their decision in making of policy on the median voter theorem. As per the rule, political competition drives the parties to propose a policy preferred by the median voter. For example: If there are two political parties in the upcoming election competing each other and both parties are ready to promise a tariff rate that will please the majority of the voters. In such case they will hypothetically line up all the voters as per their preferred tariff rates from low to high starting from the left, where the voters are assumed to differ in their preference for tariff rates, result is an upward sloping straight line. They parties would prefer protection with high tariff rates. Moreover, if high-skilled workers are abundant, then trade is predicted to benefit the high-skilled workers; thus the high-skilled workers preference will be low tariff rates. When one party proposes a tariff rate considerably higher than the median, then the other party can easily offer a slightly lower tariff rate that will be preferred by majority voters who want a lower tariff. To summarize, it will be always preferable for a party to undercut any tariff proposal which is higher than what the median voter prefers.