"Optimal Income Transfers and
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This paper investigates
the choice of optimal international income transfers when
trade policies are decided in a non-cooperative fashion.
Three alternative scenarios, depending on the timing of
the actions, and on whether the transfer is tied, are
analyzed. It is shown that if the transfer is untied, the
optimal transfer is zero irrespective of whether the
amount of transfer is chosen simultaneously with, before,
or after the tariffs. When the donor can tie the transfer
to a reduction in the recipient's tariff, the optimal
level of the transfer is positive, and the world achieves
a Pareto-efficient equilibrium.
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This page was last revised on February 04, 2000.