Exceptional Argentina Di Tella, Glaeser and Llach - Thomas Piketty

The reader will recall that we have assumed that tax revenues are distributed in lump-sum transfers
to agents; thus, the agents' attitudes will also depend on the share of total tax revenues that each
one of them expects to receive. Since we do not specify who the recipients of the lump-sum
transfers are, we should bear in mind that, even if a group's real remuneration is reduced by an
increase in export taxes, its overall utility might increase if the group receives a disproportionately
bigger share of tax revenues. We should also bear in mind that, given the first welfare theorem, it is
impossible to put each and every agent in a better-off position by increasing the tax rate and
redistributing the revenues.
In analyzing the effect of changes of τ on each group's welfare, we consider the short-, mediumand
long-run time horizons. In the short run, no reallocation of factors takes place. In the medium
run, only labor is allowed to move between the secondary and tertiary sectors. In the long run, all
factors can be reallocated, and the economy fully adjusts to its new long-run equilibrium.
In Appendix A (Section 7.2.1), we show that the diversification and trade region is particularly
prone to distributional conflict. This is because, in the other regions, either all interests are aligned
(under specialization) or a marginal change in the export tax rate has no real consequences (under
reversal of the pattern of trade and autarky). Therefore, we will focus on pairs ( π , τ ) such that the
economy will be in the diversification and trade region.
In the short run, protectionist policies will benefit owners of factors employed in the secondary
sector and will harm those employed in the primary and tertiary sectors. Since the proportion of
factors employed in the secondary sector increases as we move upward and toward the left in the
diversification and trade region, protectionist policies have more short-run support as we move
closer to the autarky region and less support as we move closer to the specialization area (see
Proposition 3 in Appendix A).
In the medium run, landlords and capitalists with investments in the primary sector will oppose
protectionism, while capitalists with investments in the secondary sector will support it. Workers
will now have a homogenous attitude toward τ ; either all workers will prefer protectionism, or all
of them will oppose to it. We show that the pairs of ( π , τ ) at which workers switch from opposing
protectionist policies to supporting them lies in the diversification and trade region (see
Proposition 5 in Appendix A).