Discussion Paper Details

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Title: Trade Policy and Redistribution when Preferences are Non-Homothetic

Author(s): Quy-Toan Do and Andrei A. Levchenko

Publication Date: March 2017

Keyword(s): non-homothetic preferences, redistribution and trade restrictions

Programme Area(s): International Trade and Regional Economics and Macroeconomics and Growth

Abstract: 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.

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Bibliographic Reference

Do, Q and Levchenko, A. 2017. 'Trade Policy and Redistribution when Preferences are Non-Homothetic'. London, Centre for Economic Policy Research.