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The Political Economy of Tariff Exemption Grants

Published online by Cambridge University Press:  27 January 2025

Veljko Fotak ,
Hye Seung (Grace) Lee ,
William L. Megginson Open the ORCID record for William L. Megginson [Opens in a new window]  and
Jesus M. Salas
Veljko Fotak
Affiliation:
University at Buffalo School of Management and Bocconi University Sovereign Investment Lab [email protected]
Hye Seung (Grace) Lee
Affiliation:
Fordham University Gabelli School of Business [email protected]
William L. Megginson*
Affiliation:
The University of Oklahoma Michael F. Price College of Business and University of International Business and Economics
Jesus M. Salas
Affiliation:
Lehigh University Perella Department of Finance [email protected]
*
[email protected] (corresponding author)
Rights & Permissions [Opens in a new window]

Abstract

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We investigate whether firm-level political connections affect the allocation of exemptions from tariffs imposed on $US 550 billion of Chinese goods imported to the United States annually beginning in 2018. Evidence points to politicians not only rewarding supporters but also punishing opponents: Past campaign contributions to the party controlling (in opposition to) the executive branch increase (decrease) approval likelihood. Our findings point to quid pro quo arrangements between politicians and firms, as opposed to the “information” channel linking political access to regulatory outcomes.

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , First View , pp. 1 - 40
Creative Commons
Creative Common License - CCCreative Common License - BY
This is an Open Access article, distributed under the terms of the Creative Commons Attribution licence (http://creativecommons.org/licenses/by/4.0), which permits unrestricted re-use, distribution and reproduction, provided the original article is properly cited.
Copyright
© The Author(s), 2025. Published by Cambridge University Press on behalf of the Michael G. Foster School of Business, University of Washington

Footnotes

We thank Alabh Mehta for valuable assistance with data collection and handling and Professors Reza Houston, Kuntara Pukthuanthong, and Allen Huang and the Center for Responsive Politics for sharing their data with us. We also thank an anonymous referee and Ran Duchin (the editor) for their feedback and advice. We also thank Angelo Aspris, Ilona Babenko, Matilde Bombardini, Alexander Borisov, Jonathan Brogaard, Jeff Brown, Mike Cooper, David De Remer, Thomas Ferguson, Chitru Fernando, Eitan Goldman, Dimitrios Gounopoulos, Francisco Gutierrez, Reza Houston, Winifred Huang, Gabriele Lattanzio, Haekwon Lee, Rodri London, Lubo Litov, Alberto Manconi, Phong Ngo, Sarmitha Pal, Diana Pop, Jörg Rocholl, Hong Ru, Orkun Saka, David Schoenherr, Jared Stanfield, Hanwen Sun, Susan Thorp, Ru Xie, Ania Zalewska, and Song Zhang; seminar participants at the University of Oklahoma, the University at Buffalo, the University of Bath, Nazarbayev University, and the University of Sydney; and conference participants at the 2022 Future Finance and Economics Association meeting, the 2021 China International Conference in Finance, the 2021 European Finance Association annual meeting, the 2021 International Finance and Banking Society meeting, the 2021 Financial Management Association meeting, and the 2022 American Finance Association meeting for helpful comments. This manuscript was previously circulated with the title “Selling Indulgences: The Political Economy of Tariff Exemption Grants.” All errors are, of course, our own.

Funding: This research was partially supported by funding from the School of Management, University at Buffalo.

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