TRADE ADJUSTMENT ASSISTANCE - WELFARE AND INCENTIVE EFFECTS OF PAYMENTS TO DISPLACED WORKERS

We consider several designs for trade adjustment assistance, focusing first on the efficiency trade-off between deadweight losses from raisi ng revenue and inefficient incentives induced by (some) assistance pro grams. We also focus on distributional objectives using a conservative social welfare function. We consider programs that are conditional on being unemployed, conditional on being employed, and unconditional. W e also consider fixed payment programs and 'tapered' programs offering payments proportional to the wage erosion suffered by a given worker. Welfare comparisons are ambiguous in general, but in our basic case a n unconditional tapered program is welfare superior to the others cons idered.