Income distribution and unequal gains from trade |
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Authors: | Bo Gao Bin Qiu |
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Affiliation: | 1. School of Business and Economics, Loughborough University, Loughborough, UK;2. School of Economics and Management, Southeast University, Nanjing, China |
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Abstract: | This paper studies welfare gains from trade in a tractable model with a nonhomothetic preference over product quality. We show that the welfare changes due to trade shocks are unequal across consumers and derive a parsimonious formula to measure these welfare changes as in Arkolakis et al. (2012, American Economic Review, 102, 94–130). We find that the welfare changes are larger for consumers with lower income. Moreover, this paper shows that the welfare implications are different between a change in (iceberg-type) variable trade cost and a change in tariff when tariff revenue matters. More importantly, we show that the difference varies across consumers with different income levels. |
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Keywords: | optimal tariff trade gains unequal gains |
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