Trade Policy and the Household Distribution of Income
Tinbergen Institute Discussion Paper No. 2004-051/2
27 Pages Posted: 5 May 2004
We explore the relationship between import protection and the household distribution of income. We first develop a general-equilibrium mapping from tariffs to household inequality measures. This also yields predictions for linkages between tariffs, development level, and observed household inequality. Working with a new dataset, we then examine crosscountry variation in inequality with respect to import protection. Results are consistent with predictions of the factor-intensity model of trade. Regression results suggest that import protection makes income distribution worse for countries in labor-intensive diversification cones. This relationship shifts to one of falling inequality as incomes rise and we move to capital-intensive diversification cones.
Keywords: trade, inequality, distribution of income, Atkinson index, Gini coefficient, globalization, tariffs
JEL Classification: F13, D31, O15
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