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Limits to the Potential Gains from Economic Integration and Other Supply Side Policies

Limits to the Potential Gains from Economic Integration and Other Supply Side Policies Abstract Classical welfare economics demonstrates potential Pareto improvements from `supply side' policy changes that increase the efficiency of aggregate production. Special cases reviewed here concern market integration through customs unions and the gains from international trade. These classical results require incentive incompatible lump-sum transfers. Generally, other policies must compensate deserving losers. Following Dixit and Norman, we consider a freeze of consumer post-tax prices, wages, and dividends, with tax rates and producer prices left to clear markets. Actual Pareto improvements are then generated by uniform poll subsidies. With appropriately distributed external tariff revenue, neither international transfers nor free disposal are required. This content is only available as a PDF. Author notes Both authors are grateful for research support from the research budget of the European University Institute, where our work began after Edmund Malinvaud’s Jean Monnet lectures had awakened our interest in the second-best case for liberalisation. The paper formed ch. 3 of Sempere’s Ph.D. dissertation at the European University Institute, having previously grown out of his 1990 ‘June paper’ on Gains from Trade: Private Information and Rigid Policy Responses and also Hammond’s seminar at the University of Oslo in June 1990 on The Role of Integrated Markets. Since then, Sempere has presented the paper to die European Economic Association meeting in Cambridge, September 1991, the International Economics Seminar of Stanford University’s Economics Department in December 1991, the Latin American meeting of the Econometric Society in Mexico City in August 1992, the joint meeting of the Research Consortium on North American Trade and Investment and of the Canada/U.S. Trade Research Group, held at the University of Western Ontario in October 1992, and finally to the Department of Economics at the University of Havana in December 1993. Hammond has presented various versions to the ASSET Conference in Bilbao, November 1990, and to later seminars at the Universities of Bristol, Munich, Rome, Copenhagen, Karlsruhe, Siena, and Basel, as well as at the Norwegian School of Economics and Business in Bergen, the Austrian Institute of Economic Research in Vienna, and the Banca d'ltalia in Rome. The comments of three referees, of Sempere’s other thesis examiners Alan Kirman, Peter Neary, Victor Norman, and Rafael Repullo, as well as of numerous conference and seminar participants, especially Hans-Werner Sinn, are also gratefully acknowledged. © Royal Economic Society 1995 http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Economic Journal Oxford University Press

Limits to the Potential Gains from Economic Integration and Other Supply Side Policies

Economic Journal , Volume 105 (432) – Sep 1, 1995

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References (52)

Publisher
Oxford University Press
Copyright
© Royal Economic Society 1995
ISSN
0013-0133
eISSN
1468-0297
DOI
10.2307/2235411
Publisher site
See Article on Publisher Site

Abstract

Abstract Classical welfare economics demonstrates potential Pareto improvements from `supply side' policy changes that increase the efficiency of aggregate production. Special cases reviewed here concern market integration through customs unions and the gains from international trade. These classical results require incentive incompatible lump-sum transfers. Generally, other policies must compensate deserving losers. Following Dixit and Norman, we consider a freeze of consumer post-tax prices, wages, and dividends, with tax rates and producer prices left to clear markets. Actual Pareto improvements are then generated by uniform poll subsidies. With appropriately distributed external tariff revenue, neither international transfers nor free disposal are required. This content is only available as a PDF. Author notes Both authors are grateful for research support from the research budget of the European University Institute, where our work began after Edmund Malinvaud’s Jean Monnet lectures had awakened our interest in the second-best case for liberalisation. The paper formed ch. 3 of Sempere’s Ph.D. dissertation at the European University Institute, having previously grown out of his 1990 ‘June paper’ on Gains from Trade: Private Information and Rigid Policy Responses and also Hammond’s seminar at the University of Oslo in June 1990 on The Role of Integrated Markets. Since then, Sempere has presented the paper to die European Economic Association meeting in Cambridge, September 1991, the International Economics Seminar of Stanford University’s Economics Department in December 1991, the Latin American meeting of the Econometric Society in Mexico City in August 1992, the joint meeting of the Research Consortium on North American Trade and Investment and of the Canada/U.S. Trade Research Group, held at the University of Western Ontario in October 1992, and finally to the Department of Economics at the University of Havana in December 1993. Hammond has presented various versions to the ASSET Conference in Bilbao, November 1990, and to later seminars at the Universities of Bristol, Munich, Rome, Copenhagen, Karlsruhe, Siena, and Basel, as well as at the Norwegian School of Economics and Business in Bergen, the Austrian Institute of Economic Research in Vienna, and the Banca d'ltalia in Rome. The comments of three referees, of Sempere’s other thesis examiners Alan Kirman, Peter Neary, Victor Norman, and Rafael Repullo, as well as of numerous conference and seminar participants, especially Hans-Werner Sinn, are also gratefully acknowledged. © Royal Economic Society 1995

Journal

Economic JournalOxford University Press

Published: Sep 1, 1995

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