Equity, Welfare, and the Setting of Trade Policy in General Equilibrium

Francois, Joseph F.; Rojas-Romagosa, Hugo

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Equity, Welfare, and the Setting of Trade Policy in General Equilibrium

World Bank Policy Research Working Paper No. 3731

19 Pages Posted: 14 Oct 2005

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

Date Written: October 2005

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 and emphasizing 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 within a broad general equilibrium framework. 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

JEL Classification: F13, O15, D31, D72

Suggested Citation: Suggested Citation

Francois, Joseph F and Rojas-Romagosa, Hugo, Equity, Welfare, and the Setting of Trade Policy in General Equilibrium (October 2005). World Bank Policy Research Working Paper No. 3731, Available at SSRN: https://ssrn.com/abstract=822482