Kiel Working Papers, Kiel Institute for World Economics
No 1583:
Look Before You Leap: The Economics of Free Trade and Income Redistribution
Erich Gundlach and Albert de Vaal
Abstract: Economists tend to exalt the virtues of free international
trade, while politicians are more skeptical. This paper suggests that this
is the case because politicians mainly worry about the income distribution
effects of trade liberalization, while economists focus on efficiency.
Using textbook economic analyses we show that compensating the income
distribution effects of free trade may be more complicated and hazardous
than is often assumed, at least from a comparative static point of view.
Hence politicians may favor trade liberalization only when distributional
effects are ignored. By using a multitude of analytical tools and
approaches, our paper also makes a useful teaching case for undergraduate
students to test and gear their thinking about trade policy issues
Keywords: Trade policy, income distribution, compensation schemes, undergraduate teaching; (follow links to similar papers)
JEL-Codes: A20,; F13,; H20; (follow links to similar papers)
24 pages, January 2010
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