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Trade policy and redistribution when preferences are non-homothetic

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  • Do, Quy-Toan
  • Levchenko, Andrei A.

Abstract

We compare redistribution through trade restrictions vs. domestic lump-sum transfers. When preferences are non-homothetic, even domestic lump-sum transfers affect relative prices. Thus, contrary to the conventional wisdom, domestic lump-sum transfers are not necessarily superior to distortionary trade policy. We develop this argument in the context of food export bans imposed by many developing countries in the late 2000s.

Suggested Citation

  • Do, Quy-Toan & Levchenko, Andrei A., 2017. "Trade policy and redistribution when preferences are non-homothetic," Economics Letters, Elsevier, vol. 155(C), pages 92-95.
  • Handle: RePEc:eee:ecolet:v:155:y:2017:i:c:p:92-95
    DOI: 10.1016/j.econlet.2017.03.007
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    More about this item

    Keywords

    Trade restrictions; Redistribution; Non-homothetic preferences;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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