Working Paper: CEPR ID: DP4624
Authors: Joseph Francois; Hugo Rojas-Romagosa
Abstract: We analyse general equilibrium relationships between trade policy and the household distribution of income, decomposing social welfare into real income level and variance components through Gini and Atkinson indexes. We 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 in Heckscher-Ohlin and Ricardo-Viner frameworks. In addition, we can separate the efficiency and equity effects of tariffs on welfare. We then examine endogenous tariff formation when policy makers care about both equity and special interests.
Keywords: Atkinson index; Gini index; household distribution of income; political economy; trade policy
JEL Codes: D31; D72; F13; O15
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| tariff protection (F13) | household inequality (D31) |
| tariff protection (F13) | real income levels (E25) |
| real income levels (E25) | household inequality (D31) |
| tariff protection (F13) | social welfare (I38) |
| social welfare (I38) | income dispersion (D31) |
| tariff reductions in labor-abundant countries (F16) | workers' real income (J31) |
| tariff reductions in labor-abundant countries (F16) | household inequality (D31) |
| protectionist measures in capital-abundant countries (O24) | household inequality (D31) |
| equity considerations (D63) | tariff formation (F13) |