Trade Adjustment Assistance and Pareto Gains From Trade

Robert Feenstra and Tracy Lewis

No 3845, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In a model where all factors of production are imperfectly mobile, we argue that the Dixit-Norman scheme of commodity taxes may not lead to strict Pareto gains from trade. Rather, this scheme must be augmented by policies which give factors an incentive to move: hence, the role for trade adjustment assistance (TAA). We demonstrate that by knowledge of the distribution of adjustment costs across individuals, the government can offer a single TAA subsidy to all individuals willing to move between industries, and maintain a non-negative budget. The TAA subsidy, combined with the Dixit-Norman pattern of commodity taxes, can lead to Pareto gains from trade under the conditions we identify.

Date: 1991-09
Note: ITI IFM
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Published as Journal of International Economics, vo. 36, no. 3/4, May 1994, pp. 201

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Related works:
Journal Article: Trade adjustment assistance and Pareto gains from trade (1994)
Working Paper: TRADE ADJUSTMENT ASSISTANCE AND PARETO GAINS FROM TRADE (1989)
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