IDEAS home Printed from https://ideas.repec.org/p/nbr/nberwo/3845.html
   My bibliography  Save this paper

Trade Adjustment Assistance and Pareto Gains From Trade

Author

Listed:
  • Robert C. Feenstra
  • Tracy R. Lewis

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.

Suggested Citation

  • Robert C. Feenstra & Tracy R. Lewis, 1991. "Trade Adjustment Assistance and Pareto Gains From Trade," NBER Working Papers 3845, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:3845
    Note: ITI IFM
    as

    Download full text from publisher

    File URL: http://www.nber.org/papers/w3845.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    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..
    2. Brander, James A. & Spencer, Barbara J., 1994. "Trade adjustment assistance : Welfare and incentive effects of payments to displaced workers," Journal of International Economics, Elsevier, vol. 36(3-4), pages 239-261, May.
    3. Robert C. Feenstra & Tracy R. Lewis, 1991. "Distributing The Gains From Trade With Incomplete Information," Economics and Politics, Wiley Blackwell, vol. 3(1), pages 21-39, March.
    4. Peter A. Diamond, 1982. "Protection, Trade Adjustment Assistance, and Income Distribution," NBER Chapters, in: Import Competition and Response, pages 123-150, National Bureau of Economic Research, Inc.
    5. 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.
    6. Blackorby, Charles & Donaldson, David, 1988. "Cash versus Kind, Self-selection, and Efficient Transfers," American Economic Review, American Economic Association, vol. 78(4), pages 691-700, September.
    7. Neary, J Peter, 1978. "Short-Run Capital Specificity and the Pure Theory of International Trade," Economic Journal, Royal Economic Society, vol. 88(351), pages 488-510, September.
    8. Kemp, Murray C. & Wan, Henry Jr., 1986. "Gains from trade with and without lump-sum compensation," Journal of International Economics, Elsevier, vol. 21(1-2), pages 99-110, August.
    9. Mayer, Wolfgang, 1974. "Short-Run and Long-Run Equilibrium for a Small Open Economy," Journal of Political Economy, University of Chicago Press, vol. 82(5), pages 955-967, Sept./Oct.
    10. Grossman, Gene M., 1983. "Partially mobile capital : A general approach to two-sector trade theory," Journal of International Economics, Elsevier, vol. 15(1-2), pages 1-17, August.
    11. Richard A. Brecher & Ehsan U. Choudhri, 1990. "Gains from International Factor Movements without Lump-Sum Compensation: Taxation by Location versus Nationality," Canadian Journal of Economics, Canadian Economics Association, vol. 23(1), pages 44-59, February.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mario Larch & Wolfgang Lechthaler, 2013. "Whom to send to Doha? The Short-sighted Ones!," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 634-649, October.
    2. repec:elg:eechap:15325_12 is not listed on IDEAS
    3. Rossana Patrón, 2000. "Effects from trade with heterogeneous workers and minimum wages: numerical exercises," Documentos de Trabajo (working papers) 1700, Department of Economics - dECON.
    4. ICHIDA Toshihiro, 2015. "Trade-offs in Compensating Transfers for a Multiple-skill Model of Occupational Choice," Discussion papers 15083, Research Institute of Economy, Trade and Industry (RIETI).
    5. Feeney, JoAnne & Hillman, Arye L., 1995. "Asset markets and individual trade policy preferences," Discussion Papers, Series II 282, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    6. Gokhan Akay & Can Dogan, 2013. "The effect of labor supply changes on output: empirical evidence from US industries," Journal of Productivity Analysis, Springer, vol. 39(2), pages 123-130, April.
    7. T. Huw Edwards & John Whalley, 2002. "Short and Long Run Decompositions of OECD Wage Inequality Changes," NBER Working Papers 9265, National Bureau of Economic Research, Inc.
    8. repec:ilo:ilowps:250014 is not listed on IDEAS
    9. Sebastian Edwards, 1989. "On the Sequencing of Structural Reforms," NBER Working Papers 3138, National Bureau of Economic Research, Inc.
    10. Debaere, Peter & Li, Tianshu, 2017. "The Effects of Water Markets: Evidence from the Rio Grande," 2017 Annual Meeting, July 30-August 1, Chicago, Illinois 259187, Agricultural and Applied Economics Association.
    11. Alvaro Forteza & Rossana Patrón, 2003. "Trade Liberalisation with Costly Adjustment," Journal of Applied Economics, Universidad del CEMA, vol. 6, pages 95-125, May.
    12. Saint-Paul, Gilles, 2007. "Making sense of Bolkestein-bashing: Trade liberalization under segmented labor markets," Journal of International Economics, Elsevier, vol. 73(1), pages 152-174, September.
    13. Akay, Gokhan H., 2012. "Trade and factor returns: Empirical evidence from U.S. economy," International Review of Economics & Finance, Elsevier, vol. 21(1), pages 77-86.
    14. Gerken, Egbert & Gross, Martin & Lächler, Ulrich, 1984. "The causes and consequences of steel subsidization in Germany," Kiel Working Papers 214, Kiel Institute for the World Economy (IfW Kiel).
    15. Jiandong Ju & Shang-Jin Wei, 2007. "Current Account Adjustment: Some New Theory and Evidence," NBER Working Papers 13388, National Bureau of Economic Research, Inc.
    16. Magee, Christopher S.P. & Davidson, Carl & Matusz, Steven J., 2005. "Trade, turnover, and tithing," Journal of International Economics, Elsevier, vol. 66(1), pages 157-176, May.
    17. Sugata Marjit, 1992. "Technology and obsolescence: A reinterpretation of the specific-factor model of production," Journal of Economics, Springer, vol. 55(2), pages 193-207, June.
    18. Franziska Ohnsorge & Daniel Trefler, 2004. "Sorting It Out: International Trade and Protection With Heterogeneous Workers," NBER Working Papers 10959, National Bureau of Economic Research, Inc.
    19. Michael Mussa, 1982. "Government Policy and the Adjustment Process," NBER Chapters, in: Import Competition and Response, pages 73-122, National Bureau of Economic Research, Inc.
    20. Michael C. Burda, 1990. "Les conséquences de l'union économique et monétaire de l'Allemagne," Revue de l'OFCE, Programme National Persée, vol. 34(1), pages 215-238.
    21. Sabine Engelmann, 2014. "International trade, technological change and wage inequality in the UK economy," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 41(2), pages 223-246, May.
    22. Giordani, Paolo E. & Mariani, Fabio, 2022. "Unintended consequences: Can the rise of the educated class explain the revival of protectionism?," Journal of Economic Theory, Elsevier, vol. 200(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:3845. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/nberrus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.