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Trade Adjustment Assistance And Pareto Gains From Trade

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  • FEENSTRA, R.C.
  • LEWIS, T.R.

Abstract

In a model where all factors of production are imperfectly mobile, we argue that the Dixit-Norman scheme of commodity taxes may not lead to strict Pareto gains from trade. Rather, this scheme must be augmented by policies which give factors an incentive to move: hence, the role for trade adjustment assistance (TAA). We demonstrate that by knowledge of the distribution of adjustment costs across individuals, the government can offer a single TAA subsidy to all individuals willing to move between industries, and maintain a non-negative budget. The TAA subsidy, combined with the Dixit-Norman pattern of commodity taxes, can lead to Pareto gains from trade under the conditions we identify.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

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  • Feenstra, R.C. & Lewis, T.R., 1989. "Trade Adjustment Assistance And Pareto Gains From Trade," Papers 343, California Davis - Institute of Governmental Affairs.
    • Handle: RePEc:fth:caldav:343
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    1. Mussa, Michael, 1974. "Tariffs and the Distribution of Income: The Importance of Factor Specificity, Substitutability, and Intensity in the Short and Long Run," Journal of Political Economy, University of Chicago Press, vol. 82(6), pages 1191-1203, Nov.-Dec..
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    7. Leamer, Edward E., 1980. "Welfare computations and the optimal staging of tariff reductions in models with adjustment costs," Journal of International Economics, Elsevier, vol. 10(1), pages 21-36, February.
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