Discussion paper

DP11890 Trade Policy and Redistribution when Preferences are Non-Homothetic

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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Citation

Levchenko, A and Q Do (2017), ‘DP11890 Trade Policy and Redistribution when Preferences are Non-Homothetic‘, CEPR Discussion Paper No. 11890. CEPR Press, Paris & London. https://cepr.org/publications/dp11890