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Equity, welfare, and the setting of trade policy in general equilibrium

Author

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  • Francois, Joseph
  • Rojas-Romagosa, Hugo

Abstract

The authors analyzegeneral equilibrium relationships between trade policy and the household distribution of income, decomposing social welfare into real income level and variance components and emphasizing Gini and Atkinson indexes. They embed these inequality-adjusted social welfare functions in a general equilibrium structure mapping from tariff protection to household inequality. This yields predictions regarding the linkages between trade protection, country characteristics, and inequality within a broad general equilibrium framework. In addition, the authors can separate the efficiency and equity effects of tariffs on welfare. They then examine endogenous tariff formation when policymakers care about both equity and special interests.

Suggested Citation

  • Francois, Joseph & Rojas-Romagosa, Hugo, 2005. "Equity, welfare, and the setting of trade policy in general equilibrium," Policy Research Working Paper Series 3731, The World Bank.
  • Handle: RePEc:wbk:wbrwps:3731
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    References listed on IDEAS

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    1. 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.
    2. Anderson, James E., 1997. "Revenue Neutral Trade Reform with Many Households, Quotas and Tariffs," Seminar Papers 626, Stockholm University, Institute for International Economic Studies.
    3. Matthew Higgins & Jeffrey G. Williamson, 1999. "Explaining Inequality the World Round: Cohort Size, Kuznets Curves, andOpenness," NBER Working Papers 7224, National Bureau of Economic Research, Inc.
    4. Elhanan Helpman, 1995. "Politics and Trade Policy," NBER Working Papers 5309, National Bureau of Economic Research, Inc.
    5. John C. Harsanyi, 1953. "Cardinal Utility in Welfare Economics and in the Theory of Risk-taking," Journal of Political Economy, University of Chicago Press, vol. 61, pages 434-434.
    6. Bourguignon, F. & Morrisson, C., 1990. "Income distribution, development and foreign trade : A cross-sectional analysis," European Economic Review, Elsevier, vol. 34(6), pages 1113-1132, September.
    7. Mayer, Wolfgang, 1984. "Endogenous Tariff Formation," American Economic Review, American Economic Association, vol. 74(5), pages 970-985, December.
    8. Amartya Sen, 1976. "Real National Income," Review of Economic Studies, Oxford University Press, vol. 43(1), pages 19-39.
    9. Spilimbergo, Antonio & Londono, Juan Luis & Szekely, Miguel, 1999. "Income distribution, factor endowments, and trade openness," Journal of Development Economics, Elsevier, vol. 59(1), pages 77-101, June.
    10. Sen, Amartya, 1997. "On Economic Inequality," OUP Catalogue, Oxford University Press, number 9780198292975.
    11. Edwards, Sebastian, 1997. "Trade Policy, Growth, and Income Distribution," American Economic Review, American Economic Association, vol. 87(2), pages 205-210, May.
    12. Galor, Oded, 1994. "Tariffs, Income Distribution and Welfare in a Small Overlapping-Generations Economy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(1), pages 173-192, February.
    13. John C. Harsanyi, 1955. "Cardinal Welfare, Individualistic Ethics, and Interpersonal Comparisons of Utility," Journal of Political Economy, University of Chicago Press, vol. 63, pages 309-309.
    14. Shorrocks, Anthony F, 1983. "Ranking Income Distributions," Economica, London School of Economics and Political Science, vol. 50(197), pages 3-17, February.
    15. J. David Richardson, 1995. "Income Inequality and Trade: How to Think, What to Conclude," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 33-55, Summer.
    16. Barro, Robert J, 2000. "Inequality and Growth in a Panel of Countries," Journal of Economic Growth, Springer, vol. 5(1), pages 5-32, March.
    17. Robert Feenstra & Gordon Hanson, 2001. "Global Production Sharing and Rising Inequality: A Survey of Trade and Wages," NBER Working Papers 8372, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Joseph Francois & Hugo Rojas-Romagosa, 2007. "Equity and Trade Policy," IIDE Discussion Papers 20070501, Institue for International and Development Economics.
    2. Joseph Francis Francois & Hugo ROJAS-ROMAGOSA, 2008. "Equity and International Trade," Economics working papers 2008-14, Department of Economics, Johannes Kepler University Linz, Austria.
    3. Acharya, Sanjaya & Cohen, Solomon, 2008. "Trade liberalisation and household welfare in Nepal," Journal of Policy Modeling, Elsevier, vol. 30(6), pages 1057-1060.
    4. Francois, Joseph & Rojas-Romagosa, Hugo, 2011. "Household inequality, social welfare, and trade," Journal of Development Economics, Elsevier, vol. 96(2), pages 422-431, November.

    More about this item

    Keywords

    Economic Theory&Research; Inequality; Free Trade; Poverty Impact Evaluation; Investment and Investment Climate;

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