Trade Policy and Redistribution when Preferences are Non-Homothetic
NBER Working Paper No. 23237
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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Document Object Identifier (DOI): 10.3386/w23237