Tehran Institute for Advanced Studies (TeIAS)

/ Inequality, Redistribution and Optimal Trade Policy: A Public Finance Approach __ Ali Shourideh


Inequality, Redistribution and Optimal Trade Policy: A Public Finance Approach

December 17, 2017


Khatam University, Building No2.
Address: Mollasadra Blvd., North Shirazi St., East Daneshvar St., No.17. See location on Google map


Dr Ali Shourideh
assistant professor of economics


Recent evidence, as illustrated by Autor et al. (2013) as well as Caliendo et al. (2015), suggests that international trade and global reallocation of production has contributed to domestic reallocation of labor and income inequality. In this paper, we explore the relationship between optimal trade and redistributive policies. In particular, in an environment where international trade affects the relative wages and the allocation of labor across various sectors, we study how taxes and tariff s should be designed in order to balance the efficiency gains from trade with the costs associated with the resulting increased inequality. We assume that fiscal policy instruments are incomplete to the extent that they only depend on income (and not other characteristics such as occupation, etc.). This features leads to existence of a deadweight loss from taxation which in turn depends on the distribution of wages in the economy. Since trade policies affect the distribution of wages, they can be efficiently used to lower the deadweight loss of taxation. As a result, optimal trade policy leads to distortions to free-trade even when countries can coordinate their policies. We use our framework characterizes the key determinants of optimal trade policies.



Ali Shourideh is an assistant professor of economics at Carnegie Mellon University, Tepper School of Business. He has previously been an assistant professor at Wharton Business School of the University of Pennsylvania. He received his PhD from the University of Minnesota in 2011, his Masters degree from the economics department of the University of British Columbia, and his B.Sc. degree from the mechanical engineering department of the Sharif University of Technology.
He is broadly interested in macroeconomics and financial markets. His
research is particularly focused on adverse selection in markets, optimal taxation design, social security and financial frictions.