Abstract
How does international trade affect income redistribution? We consider a country where the government uses a non-linear income tax to maximize some redistributive social welfare function, subject to the constraint that it can observe only individual incomes but not individual characteristics. In autarky, the government can partially equalize equilibrium prices and wages by manipulating quantities through the tax system. If borders are open, prices are determined by world markets and the government is deprived of this possibility. It may therefore be unable to redistribute the gains from trade: opening borders may decrease welfare even after the optimal policy adjustment.
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