Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

Figure 3: Medium Run Preferences overτ
In the long run, landlords will always oppose protectionist policies and will benefit from
improvements in the terms of trade (Proposition 6, Appendix A). One of our key results is that
workers will also prefer a zero tax rate if π is sufficiently high (Proposition 7, Appendix A). In
this case, workers prefer to be employed in the tertiary sector where they can take advantage of the
high level of national income induced by high terms of trade. The result for capitalists is similar;
for a sufficiently high π , far-sighted capitalists will also support free trade policies.
The key insight that we want to convey here is that agents will support or oppose policies
according to their source of income and their relevant time horizon. In the diversification and trade
region, agents' attitudes toward protectionism exhibit an interesting pattern. Landlords oppose
them in all cases; capitalists employed in the manufacturing sector support them both in the short
and medium terms. 6 Who prevails in this struggle depends on several factors that are beyond the
scope of this paper; however, our analytical model gives us some mileage in answering this
question. It seems fairly reasonable that the size of the capitalist faction that supports
protectionism will be positively correlated with the likelihood of these policies being enacted.
Moreover, in a democracy, workers could be the pivotal faction that shifts the balance of power.
Clearly, as we move upward and to the left in the diversification and trade region, protectionist
policies will enjoy wider support. As we move in this direction, both workers and capitalists will
be more likely to advocate these policies. In the short run, there will be more workers and
6 We will assume that capitalists are not far-sighted. We are careful to draw the distinction between different time
horizons in view of the fact that capital is not perfectly mobile across sectors. If we were to assume that capital is, in
fact, not mobile at all and that capital reallocation occurs only through a process in which depreciated capital in one
sector is not replaced while the other sector has a positive net rate of investment, then it would make perfect sense to
assume that capitalists whose capital is already locked into one of the two sectors will only care about the short and
medium terms.