Household Inequality, Welfare and the Setting of Trade Policy

25 Pages Posted: 9 Nov 2004

See all articles by Joseph F. Francois

Joseph F. Francois

University of Bern - Department of Economics; Centre for Economic Policy Research (CEPR); Vienna Institute of International Economic Studies (WIIW); University of Adelaide - School of Economics

Hugo Rojas-Romagosa

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA)

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Date Written: September 2004

Abstract

We analyze 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: Trade policy, household distribution of income, Atkinson index, Gini index, political economy

JEL Classification: D31, D72, F13, O15

Suggested Citation

Francois, Joseph F and Rojas-Romagosa, Hugo, Household Inequality, Welfare and the Setting of Trade Policy (September 2004). CEPR Discussion Paper No. 4624. Available at SSRN: https://ssrn.com/abstract=617309

Joseph F Francois (Contact Author)

University of Bern - Department of Economics ( email )

Schanzeneckstrasse 1
Bern, CH-3001
Switzerland

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Vienna Institute of International Economic Studies (WIIW) ( email )

Oppolzergasse 6
A-1010 Vienna
Austria

University of Adelaide - School of Economics ( email )

Adelaide SA, 5005
Australia
+61 8 8303 5540 (Phone)
+61 8 8223 1460 (Fax)

Hugo Rojas-Romagosa

Tinbergen Institute - Tinbergen Institute Amsterdam (TIA) ( email )

Gustav Mahlerplein 117
Amsterdam, 1082 MS
Netherlands

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