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On the distributional effects of trade policy: Dynamics of household saving and asset prices

  • San Vicente Portes, Luis
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    This paper studies the effect of trade liberalization on inequality. We develop a theoretical framework that generates economy-wide distributions of wealth and income for different levels of trade protection. The model unambiguously determines the effect of liberalization on inequality; and rationalizes why larger inequality can be the outcome of a welfare enhancing policy, as households reduce their buffer savings when liberalization lowers the price of food. The framework reconciles the increase in inequality, the fall in the value of land, and farmers' opposition to freer trade, that have featured in different liberalization episodes. We also present empirical support for the model's predictions.

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    File URL: http://www.sciencedirect.com/science/article/B6W5X-4TPF4NN-2/2/d0e68f6f65ee69bbf42097c623109b0d
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    Article provided by Elsevier in its journal The Quarterly Review of Economics and Finance.

    Volume (Year): 49 (2009)
    Issue (Month): 3 (August)
    Pages: 944-970

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    Handle: RePEc:eee:quaeco:v:49:y:2009:i:3:p:944-970
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/620167

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    10. David Domeij & Jonathan Heathcote, 2004. "On The Distributional Effects Of Reducing Capital Taxes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 523-554, 05.
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    14. repec:ebl:ecbull:v:15:y:2002:i:1:p:1-7 is not listed on IDEAS
    15. Jagdish Bhagwati, 2002. "Trade and Poverty in the Poor Countries," American Economic Review, American Economic Association, vol. 92(2), pages 180-183, May.
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    17. Soloaga, Isidro, 2000. "The treatment of non-essential inputs in a Cobb-Douglas technology : an application to Mexican rural household-level data," Policy Research Working Paper Series 2499, The World Bank.
    18. James E. Anderson, 1996. "Trade Reform with a Government Budget Constraint," NBER Working Papers 5827, National Bureau of Economic Research, Inc.
    19. Francesc Obiols-Homs & Carlos Urrutia, 2005. "Transitional dynamics and the distribution of assets," Economic Theory, Springer, vol. 25(2), pages 381-400, 02.
    20. Per Krusell & Lee E. Ohanian & JosÈ-Victor RÌos-Rull & Giovanni L. Violante, 2000. "Capital-Skill Complementarity and Inequality: A Macroeconomic Analysis," Econometrica, Econometric Society, vol. 68(5), pages 1029-1054, September.
    21. Adelman, Irma & Robinson, Sherman, 1989. "Income distribution and development," Handbook of Development Economics, in: Hollis Chenery & T.N. Srinivasan (ed.), Handbook of Development Economics, edition 1, volume 2, chapter 19, pages 949-1003 Elsevier.
    22. Mendoza, Enrique G. & Razin, Assaf & Tesar, Linda L., 1994. "Effective tax rates in macroeconomics: Cross-country estimates of tax rates on factor incomes and consumption," Journal of Monetary Economics, Elsevier, vol. 34(3), pages 297-323, December.
    23. Huggett, Mark, 1993. "The risk-free rate in heterogeneous-agent incomplete-insurance economies," Journal of Economic Dynamics and Control, Elsevier, vol. 17(5-6), pages 953-969.
    24. Maria Jose Alvarez & Antonia Diaz, . "Minimum consuption, transitional dynamics ana the kuznets curve," Working Papers 2000-03, FEDEA.
    25. Feenstra, Robert C., 1989. "Symmetric pass-through of tariffs and exchange rates under imperfect competition: An empirical test," Journal of International Economics, Elsevier, vol. 27(1-2), pages 25-45, August.
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    27. Geoffrey J. Bannister, 2001. "International Trade and Poverty Alleviation," IMF Working Papers 01/54, International Monetary Fund.
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