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Globalization, inequality and welfare

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  • Antràs, Pol
  • de Gortari, Alonso
  • Itskhoki, Oleg

Abstract

This paper studies the welfare implications of trade opening in a world in which trade raises aggregate income but also increases income inequality, and in which redistribution needs to occur via a distortionary income tax-transfer system. We provide tools to characterize and quantify the effects of trade opening on the distribution of disposable income (after redistribution). We propose two adjustments to standard measures of the welfare gains from trade: a ‘welfarist’ correction inspired by the Atkinson (1970) index of inequality, and a ‘costly-redistribution’ correction capturing the efficiency costs associated with the behavioral responses of agents to trade-induced shifts across marginal tax rates. We calibrate our model to the United States over the period 1979–2007 using data on the distribution of adjusted gross income in public samples of IRS tax returns, as well as CBO information on the tax liabilities and transfers received by agents at different percentiles of the U.S. income distribution. Our quantitative results suggest that both corrections are nonnegligible: trade-induced increases in inequality of disposable income erode about 20% of the gains from trade, while the gains from trade would be about 15% larger if redistribution was carried out via non-distortionary means.

Suggested Citation

  • Antràs, Pol & de Gortari, Alonso & Itskhoki, Oleg, 2017. "Globalization, inequality and welfare," Journal of International Economics, Elsevier, vol. 108(C), pages 387-412.
  • Handle: RePEc:eee:inecon:v:108:y:2017:i:c:p:387-412
    DOI: 10.1016/j.jinteco.2017.07.009
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    Cited by:

    1. Katrin Huber & Erwin Winkler, 2016. "All We Need is Love? Trade-Adjustment, Inequality, and the Role of the Partner," SOEPpapers on Multidisciplinary Panel Data Research 873, DIW Berlin, The German Socio-Economic Panel (SOEP).
    2. Spencer Bastani & Jacob Lundberg, 2017. "Political preferences for redistribution in Sweden," The Journal of Economic Inequality, Springer;Society for the Study of Economic Inequality, vol. 15(4), pages 345-367, December.
    3. Aleh Tsyvinski & Nicolas Werquin, 2017. "Generalized Compensation Principle," NBER Working Papers 23509, National Bureau of Economic Research, Inc.
    4. Alessandro Borin & Elisa Macchi & Michele Mancini, 2018. "Eu transfers and euroscepticism: can’t buy me love?," ECON - Working Papers 289, Department of Economics - University of Zurich.
    5. Engler, Philipp & Tervala, Juha, 2018. "Welfare effects of TTIP in a DSGE model," Economic Modelling, Elsevier, vol. 70(C), pages 230-238.
    6. Robert C. Feenstra, 2017. "Statistics to Measure Offshoring and its Impact," NBER Working Papers 23067, National Bureau of Economic Research, Inc.
    7. Dominik Sachs & Aleh Tsyvinski & Nicolas Werquin, 2016. "Nonlinear Tax Incidence and Optimal Taxation in General Equilibrium," NBER Working Papers 22646, National Bureau of Economic Research, Inc.
    8. Dominik Sachs & Aleh Tsyvinski & Nicolas Werquin, 2016. "A Theory of Asset Prices Based on Heterogeneous Information," Cowles Foundation Discussion Papers 2051, Cowles Foundation for Research in Economics, Yale University.
    9. Fetzer, Thiemo, 2018. "Did Austerity Cause Brexit?," The Warwick Economics Research Paper Series (TWERPS) 1170, University of Warwick, Department of Economics.
    10. repec:eee:streco:v:45:y:2018:i:c:p:84-93 is not listed on IDEAS
    11. Aiginger, Karl, 2017. "Europa zwischen Globalisierung und Renationalisierung," Department of Economics Working Paper Series 5682, WU Vienna University of Economics and Business.
    12. Fetzer, Thiemo, 2018. "Did Austerity Cause Brexit?," CAGE Online Working Paper Series 381, Competitive Advantage in the Global Economy (CAGE).

    More about this item

    Keywords

    Globalization; Trade integration; Social welfare; Inequality; Costly redistribution;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • D30 - Microeconomics - - Distribution - - - General
    • D60 - Microeconomics - - Welfare Economics - - - General
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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