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Abstract
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 |
|---|---|
| Publikationsform: | Preprint |
| Keywords: | nonhomothetic preferences, income distribution, monopolistic competition |
| Fakultät: | Volkswirtschaft
Volkswirtschaft > Munich Discussion Papers in Economics Volkswirtschaft > Munich Discussion Papers in Economics > Wirtschaftspolitik |
| Themengebiete: | 300 Sozialwissenschaften > 300 Sozialwissenschaft, Soziologie
300 Sozialwissenschaften > 330 Wirtschaft |
| JEL Classification: | F12 |
| URN: | urn:nbn:de:bvb:19-epub-11492-5 |
| Sprache: | Englisch |
| Dokumenten ID: | 11492 |
| Datum der Veröffentlichung auf Open Access LMU: | 30. Apr. 2010, 21:37 |
| Letzte Änderungen: | 07. Nov. 2020, 06:11 |
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