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The Redistribution of Trade Gains and the Equity-Efficiency Trade-Off

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  • Marco de Pinto

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    (Institute for Labour Law and Industrial Relations in the EU, University of Trier)

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    Abstract

    The contribution of this paper is to derive an optimal redistribution scheme for trade gains in the case of a government's objective function that explicitly accounts for the equity-efficiency trade-off. The government pays unemployment benefits (UB) either financed by a wage tax, a payroll tax or a profit tax paid by exporters only. Using a Melitz-type framework with unionized labor markets and heterogeneous workers we show that there is a clear-cut ranking of the redistribution schemes in terms of welfare level: 1. UB financed by a profit tax paid by exporters, 2. UB financed by a wage tax, 3. UB financed by a payroll tax.

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    Bibliographic Info

    Paper provided by Institute of Labour Law and Industrial Relations in the European Union (IAAEU) in its series IAAEU Discussion Papers with number 201206.

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    Date of creation: Oct 2012
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    Handle: RePEc:iaa:dpaper:201206

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    Keywords: trade liberalization; heterogeneous firms; trade unions; income unequality; unemployment benefits; taxes;

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    1. Schwarze, Johannes & Harpfer, Marco, 2007. "Are people inequality averse, and do they prefer redistribution by the state?: Evidence from German longitudinal data on life satisfaction," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(2), pages 233-249, April.
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    17. Fitzenberger, Bernd & Wilke, Ralf A., 2004. "Unemployment Durations in West-Germany Before and After the Reform of the Unemployment Compensation System During the 1980s," ZEW Discussion Papers 04-24, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
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    21. Marco de Pinto & Jochen Michaelis, 2011. "International Trade and Unemployment - the Worker-Selection Effect," MAGKS Papers on Economics 201127, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
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