Trade Adjustment Assistance and Pareto Gains from Trade

34 Pages Posted: 8 Aug 2007 Last revised: 15 Jul 2010

See all articles by Robert C. Feenstra

Robert C. Feenstra

University of California, Davis - Department of Economics; National Bureau of Economic Research (NBER)

Tracy R. Lewis

affiliation not provided to SSRN

Date Written: September 1991

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

Feenstra, Robert C. and Lewis, Tracy R., Trade Adjustment Assistance and Pareto Gains from Trade (September 1991). NBER Working Paper No. w3845. Available at SSRN: https://ssrn.com/abstract=473978

Robert C. Feenstra (Contact Author)

University of California, Davis - Department of Economics ( email )

One Shields Drive
Davis, CA 95616-8578
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National Bureau of Economic Research (NBER)

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Tracy R. Lewis

affiliation not provided to SSRN

No Address Available

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