DP11890 Trade Policy and Redistribution when Preferences are Non-Homothetic
|Author(s):||Quy-Toan Do, Andrei A. Levchenko|
|Publication Date:||March 2017|
|Keyword(s):||non-homothetic preferences, redistribution, trade restrictions|
|JEL(s):||F13, O24, Q17|
|Programme Areas:||International Trade and Regional Economics, Macroeconomics and Growth|
|Link to this Page:||www.cepr.org/active/publications/discussion_papers/dp.php?dpno=11890|
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.