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Trade policy and redistribution when preferences are non-homothetic

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  • Do, Quy-Toan
  • Levchenko, Andrei A.

Abstract

We compare redistribution through trade restrictions vs. domestic lump-sum transfers. When preferences are non-homothetic, even domestic lump-sum transfers affect relative prices. Thus, contrary to the conventional wisdom, domestic lump-sum transfers are not necessarily superior to distortionary trade policy. We develop this argument in the context of food export bans imposed by many developing countries in the late 2000s.

Suggested Citation

  • Do, Quy-Toan & Levchenko, Andrei A., 2017. "Trade policy and redistribution when preferences are non-homothetic," Economics Letters, Elsevier, vol. 155(C), pages 92-95.
    • Handle: RePEc:eee:ecolet:v:155:y:2017:i:c:p:92-95
    DOI: 10.1016/j.econlet.2017.03.007
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    References listed on IDEAS

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    1. Glazer, Amihai & Ranjan, Priya, 2007. "Trade protection to reduce redistribution," European Journal of Political Economy, Elsevier, vol. 23(3), pages 790-805, September.
    2. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721-765.
    3. Everett E. Hagen, 1958. "An Economic Justification of Protectionism," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 72(4), pages 496-514.
    4. Paolo Epifani & Gino Gancia, 2009. "Openness, Government Size and the Terms of Trade," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(2), pages 629-668.
    5. Pablo D. Fajgelbaum & Amit K. Khandelwal, 2016. "Measuring the Unequal Gains from Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1113-1180.
    6. Rinku Murgai & Martin Ravallion & Dominique van de Walle, 2016. "Is Workfare Cost-effective against Poverty in a Poor Labor-Surplus Economy?," The World Bank Economic Review, World Bank, vol. 30(3), pages 413-445.
    7. Porto, Guido G., 2006. "Using survey data to assess the distributional effects of trade policy," Journal of International Economics, Elsevier, vol. 70(1), pages 140-160, September.
    8. Krueger, Anne O, 1974. "The Political Economy of the Rent-Seeking Society," American Economic Review, American Economic Association, vol. 64(3), pages 291-303, June.
    9. Pablo D. Fajgelbaum, 2011. "Income Distribution, Product Quality and International Trade," 2011 Meeting Papers 415, Society for Economic Dynamics.
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    Cited by:

    1. Santiago Camara, 2022. "TANK meets Diaz-Alejandro: Household heterogeneity, non-homothetic preferences & policy design," Papers 2201.02916, arXiv.org.

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    More about this item

    Keywords

    Trade restrictions; Redistribution; Non-homothetic preferences;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • Q17 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Agriculture - - - Agriculture in International Trade
    • O24 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Trade Policy; Factor Movement; Foreign Exchange Policy

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