Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/82006 
Year of Publication: 
1997
Series/Report no.: 
EPRU Working Paper Series No. 1997-06
Publisher: 
University of Copenhagen, Economic Policy Research Unit (EPRU), Copenhagen
Abstract: 
This paper investigates the optimality of international income transfers in a two-country model in which each country engages in non-cooperative trade policy behaviour. It is shown that unconditional income transfers can never be optimal for the donor country, which not only suffers the loss of income but is harmed as the recipient responds optimally by raising tariffs. It is further shown that it is possible for the donor to attach carefully designed conditionality rules to the aid package to ensure that the recipient will agree to the package and that the donor's welfare is improved. In fact, the use of conditional income transfers is shown to result in a Pareto efficient equilibrium.
Document Type: 
Working Paper

Files in This Item:
File
Size
274.27 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.