Equity and Trade Policy
AbstractWe develop a dual approach to analyzing general equilibrium relationships between trade policy and household (as distinct from functional) income distribution, highlighting how general equilibrium distributional aspects of social welfare related to import protection may be examined alongside corresponding efficiency aspects in a dual framework. This includes the introduction of a social welfare function into the dual GE system that is explicitly separable between mean income and income dispersion. This then follows through to the government ob jective function. For government, this is manifested not only in special interest politics, but also through the direct impact of inequality on a governmentÕs ob jective function. We find that equity considerations may serve to counter lobbying interests in both capital-rich and capital-poor countries, though with an opposite marginal impact on the final policy outcome. We also identify a protectionist bias on the part of welfare maximizing governments in capital-rich countries. Our dual framework also offers a possible empirical framework for decomposition of policy-induced price changes into household inequality for a broad class of models.
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Bibliographic InfoPaper provided by Institue for International and Development Economics in its series IIDE Discussion Papers with number 20070501.
Length: 36 pages
Date of creation: May 2007
Date of revision:
Trade and inequality; Sen welfare functions; duality; political economy of equity;
Find related papers by JEL classification:
- F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
- O15 - Economic Development, Technological Change, and Growth - - Economic Development - - - Economic Development: Human Resources; Human Development; Income Distribution; Migration
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-10-20 (All new papers)
- NEP-DEV-2007-10-20 (Development)
- NEP-INT-2007-10-20 (International Trade)
- NEP-POL-2007-10-20 (Positive Political Economics)
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