DP7998 Household Inequality, Social Welfare, and Trade

Author(s): Joseph Francois, Hugo Rojas-Romagosa
Publication Date: September 2010
Keyword(s): equity and welfare in general equilibrium, equity in CGE, Sen welfare functions, trade and equity
JEL(s): D31, D72, F13, O15
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=7998

Working with Sen social welfare functions (meaning explicit separability between mean income and income dispersion), we develop a generalized dual approach to tracking household inequality aspects of social welfare in general equilibrium. We highlight how household equity can be examined analytically alongside production efficiency in duality-based models, using our dual framework to explore potential trade-offs between efficiency and equity effects of trade policy. Our results complement the set of standard inequality results in trade theory focused on functional rather than household inequality. We also find that the relative distributional impact of tariffs on welfare is conditional on the initial level of inequality.