We analyze general equilibrium relationships between trade policy and the household distribution of income, decomposing social welfare into real income level and variance components through Gini and Atkinson indexes. We embed these inequality-adjusted social welfare functions in a general equilibrium structure mapping from tariff protection to household inequality. This yields predictions regarding the linkages between trade protection, country characteristics and inequality in Heckscher-Ohlin and Ricardo-Viner frameworks. In addition, we can separate the efficiency and equity effects of tariffs on welfare. We then examine endogenous tariff formation when policy makers care about both equity and special interests.

Atkinson index, Gini index, endogenous tariffs, household distribution of income, tariffs and equity, trade policy
Personal Income, Wealth, and Their Distributions (jel D31), Economic Models of Political Processes: Rent-Seeking, Elections, Legislatures, and Voting Behavior (jel D72), Commercial Policy; Protection; Promotion; Trade Negotiations; International Organizations (jel F13), Human Resources; Human Development; Income Distribution; Migration (jel O15)
Tinbergen Institute Discussion Paper Series
Tinbergen Institute

François, J.F, & Rojas-Romagosa, H. (2004). Household Inequality, Welfare, and the Setting of Trade Policy (No. TI 04-086/2). Tinbergen Institute Discussion Paper Series. Retrieved from http://hdl.handle.net/1765/6620