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: | 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.