|Tarasov, Alexander (April 2010): Trade Liberalization and Welfare Inequality: a Demand-Based Approach. Münchener Wirtschaftswissenschaftliche Beiträge (VWL) 2010-26|
There is strong evidence that different income groups consume di¤erent bundles of goods. This evidence suggests that trade liberalization can a¤ect welfare inequality within a country via changes in the relative prices of goods consumed by di¤erent income groups (the price effect). In this paper, I develop a framework that enables us to explore the role of the price effect in determining welfare inequality. There are two core elements in the model. First, I assume that heterogenous in income consumers share identical but nonhomothetic preferences. Secondly, I consider a monopolistic competition environment that leads to variable markups a¤ected by trade and trade costs. I �nd that trade liberalization does affect the prices of different goods differently and, as a result, can bene�fit some income classes more than others. In particular, I show that the relative welfare of the rich with respect to that of the poor has a hump shape as a function of trade costs.
|Dokumententyp:||Paper (Discussion Paper)|
|Keywords:||nonhomothetic preferences, income distribution, monopolistic competition|
Volkswirtschaft > Munich Discussion Papers in Economics
Volkswirtschaft > Munich Discussion Papers in Economics > Wirtschaftspolitik
|Themengebiete:||300 Sozialwissenschaften > 300 Sozialwissenschaft, Soziologie
300 Sozialwissenschaften > 330 Wirtschaft
|Veröffentlicht am:||30. Apr. 2010 21:37|
|Letzte Änderungen:||29. Apr. 2016 14:58|
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