Working Paper: CEPR ID: DP7998
Authors: Joseph Francois; Hugo Rojas-Romagosa
Abstract: Working with Sen social welfare functions (meaning explicit separability between mean income and income dispersion), we develop a generalized dual approach to tracking household inequality aspects of social welfare in general equilibrium. We highlight how household equity can be examined analytically alongside production efficiency in duality-based models, using our dual framework to explore potential trade-offs between efficiency and equity effects of trade policy. Our results complement the set of standard inequality results in trade theory focused on functional rather than household inequality. We also find that the relative distributional impact of tariffs on welfare is conditional on the initial level of inequality.
Keywords: Equity and welfare in general equilibrium; Equity in CGE; Sen welfare functions; Trade and equity
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 |
|---|---|
| Initial level of inequality (D63) | Relative distributional impact of tariffs on welfare (D39) |
| Tariffs (F19) | Mean income and income dispersion (D31) |
| Trade policy (F13) | Household inequality (D31) |
| General equilibrium import protection effects (F14) | Real income level and dispersion changes (D31) |