The Redistribution of Efficiency Gains: Transfers or Tariffs?
AbstractThis paper is concerned with some theoretical issues in cooperative multilateral trade policy reform. The focus of the paper is on the structure of the policy reform problem, particularly as it applies to piecemeal policy reform, and on the similarity in roles that can be played by income transfers on the one hand and tariffs reforms on the other as redistributive policy instruments. More specifically, the paper is concerned with the mechanism by which efficiency gains arising out of trade policy reforms can be distributed amongst countries to achieve a strict Pareto improvement in welfare. Traditionally, trade theorists have assumed the existence of lump sum income transfers to distribute efficiency gains. Turunen-Red and Woodland (2000) have shown that income transfers accompanying quota reforms can be replaced by suitable multilateral tariff reforms to achieve the same welfare outcome. In the current paper, we generalize this idea to deal with discrete policy reforms. And, we develop several applications to enhance understanding of the connection between tariffs and transfers. If lump sum transfers are not available policy instruments, the achievement of a strict Pareto improvement must depend on changes in distortionary taxes, such as domestic taxes or tariffs on trade. Our results show that, under a mild condition on the world trade matrix, it does not matter whether lump sum transfers are available. Transfers can be replaced by a carefully chosen set of tariffs to achieve the same welfare outcome. This ability to replace transfers by tariffs is a result of the structure of the model of international trade: the terms of trade effects for a country and a lump sum transfers are equivalent, and there are sufficient tariff instruments to enable countries to neutralize the domestic price effects of terms of trade movements.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 0987.
Date of creation: 01 Aug 2000
Date of revision:
Contact details of provider:
Phone: 1 212 998 3820
Fax: 1 212 995 4487
Web page: http://www.econometricsociety.org/pastmeetings.asp
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hatta, Tatsuo & Fukushima, Takashi, 1979. "The welfare effect of tariff rate reductions in a many country world," Journal of International Economics, Elsevier, vol. 9(4), pages 503-511, November.
- Diewert, W. E., 1978. "Optimal tax perturbations," Journal of Public Economics, Elsevier, vol. 10(2), pages 139-177, October.
- Myles,Gareth D., 1995. "Public Economics," Cambridge Books, Cambridge University Press, number 9780521497695, Fall.
- Turunen-Red, Arja H & Woodland, Alan D, 1991. "Strict Pareto-Improving Multilateral Reforms of Tariffs," Econometrica, Econometric Society, vol. 59(4), pages 1127-52, July.
- Neary, J Peter, 1995.
"Trade Liberalisation and Shadow Prices in the Presence of Tariffs and Quotas,"
International Economic Review,
Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 36(3), pages 531-54, August.
- Neary, J Peter, 1989. "Trade Liberalization and Shadow Prices in the Presence of Tariffs and Quotas," CEPR Discussion Papers 345, C.E.P.R. Discussion Papers.
- Mayer, Wolfgang, 1981. "Theoretical Considerations on Negotiated Tariff Adjustments," Oxford Economic Papers, Oxford University Press, vol. 33(1), pages 135-53, March.
- Turunen-Red, Arja H. & Woodland, Alan D., 1988. "On the multilateral transfer problem : Existence of Pareto improving international transfers," Journal of International Economics, Elsevier, vol. 25(3-4), pages 249-269, November.
- Diewert, W E & Turunen-Red, A H & Woodland, A D, 1989. "Productivity- and Pareto-Improving Changes in Taxes and Tariffs," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 199-215, April.
- Kyle Bagwell & Robert W. Staiger, 1997.
"An Economic Theory of GATT,"
NBER Working Papers
6049, National Bureau of Economic Research, Inc.
- Turunen-Red, Arja H. & Woodland, Alan D., 2000. "Multilateral policy reforms and quantity restrictions on trade," Journal of International Economics, Elsevier, vol. 52(1), pages 153-168, October.
- Anderson, James E & Neary, J Peter, 1992. "Trade Reform with Quotas, Partial Rent Retention, and Tariffs," Econometrica, Econometric Society, vol. 60(1), pages 57-76, January.
- Fukushima, Takashi & Kim, Namdoo, 1989. "Welfare improving tariff changes : A case of many goods and countries," Journal of International Economics, Elsevier, vol. 26(3-4), pages 383-388, May.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christopher F. Baum).
If references are entirely missing, you can add them using this form.