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Trade Shocks, Taxes, and Inequality

Author

Listed:
  • Douglas L. Campbell

    () (New Economic School (NES))

  • Lester Lusher

    () (UC Davis)

Abstract

We study the impact of trade shocks on inequality using newly constructed micro and macro data. First, we use the Current Population Survey’s (CPS) Merged Outgoing Rotation Group (MORG) from 1979 to 2010 combined with new annual measures of imported inputs, a proxy for offshoring. We find that in periods when US relative prices are high, and imports surge relative to exports, workers in sectors with greater initial exposure to international trade were more likely to be unemployed a year later, but did not experience significant declines in wages conditional on being employed. Contrary to the usual narrative, we find negative wage effects for higher-wage, but not lower-wage workers, particularly for those who are less-educated. Second, sectors most exposed to trade shocks do not experience relative increases in inequality. Third, using aggregate international data for 31 countries, we find that various trade shocks, such as increases in trade with China, are not generally correlated with changes in the income distribution. Instead, using new historical data, we confirm a close connection between top marginal tax rates and top income shares, and find that the level of top marginal tax rates impacts changes in the top 1% share of income, implying that top income shares are a function of historical marginal tax rates.

Suggested Citation

  • Douglas L. Campbell & Lester Lusher, 2016. "Trade Shocks, Taxes, and Inequality," Working Papers w0220, Center for Economic and Financial Research (CEFIR).
  • Handle: RePEc:cfr:cefirw:w0220
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    File URL: http://www.cefir.ru/papers/WP220.pdf
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    References listed on IDEAS

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    1. Daron Acemoglu & David Autor & David Dorn & Gordon H. Hanson & Brendan Price, 2016. "Import Competition and the Great US Employment Sag of the 2000s," Journal of Labor Economics, University of Chicago Press, vol. 34(S1), pages 141-198.
    2. Gianmarco I. P. Ottaviano & Giovanni Peri & Greg C. Wright, 2016. "Immigration, Offshoring, and American Jobs," World Scientific Book Chapters,in: The Economics of International Migration, chapter 4, pages 117-151 World Scientific Publishing Co. Pte. Ltd..
    3. Daron Acemoglu, 1998. "Why Do New Technologies Complement Skills? Directed Technical Change and Wage Inequality," The Quarterly Journal of Economics, Oxford University Press, vol. 113(4), pages 1055-1089.
    4. Daron Acemoglu & David Autor & David Dorn & Gordon H. Hanson & Brendan Price, 2014. "Return of the Solow Paradox? IT, Productivity, and Employment in US Manufacturing," American Economic Review, American Economic Association, vol. 104(5), pages 394-399, May.
    5. Robert C. Feenstra, 2007. "Globalization and Its Impact on Labour," wiiw Working Papers 44, The Vienna Institute for International Economic Studies, wiiw.
    6. Jonathan Haskel & Robert Z. Lawrence & Edward E. Leamer & Matthew J. Slaughter, 2012. "Globalization and U.S. Wages: Modifying Classic Theory to Explain Recent Facts," Journal of Economic Perspectives, American Economic Association, vol. 26(2), pages 119-140, Spring.
    7. Avraham Ebenstein & Ann Harrison & Margaret McMillan & Shannon Phillips, 2014. "Estimating the Impact of Trade and Offshoring on American Workers using the Current Population Surveys," The Review of Economics and Statistics, MIT Press, vol. 96(4), pages 581-595, October.
    8. Feldstein, Martin, 1995. "The Effect of Marginal Tax Rates on Taxable Income: A Panel Study of the 1986 Tax Reform Act," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 551-572, June.
    9. Facundo Alvaredo & Anthony Atkinson & Thomas Piketty & Emmanuel Saez, 2013. "The Top 1% in International and Historical Perspective," PSE - Labex "OSE-Ouvrir la Science Economique" halshs-00847231, HAL.
    10. Edward E. Leamer, 1994. "Trade, Wages and Revolving Door Ideas," NBER Working Papers 4716, National Bureau of Economic Research, Inc.
    11. Avraham Ebenstein & Ann Harrison & Margaret McMillan, 2015. "Why are American Workers getting Poorer? China, Trade and Offshoring," NBER Working Papers 21027, National Bureau of Economic Research, Inc.
    12. Robert C. Feenstra & John Romalis & Peter K. Schott, 2002. "U.S. Imports, Exports, and Tariff Data, 1989-2001," NBER Working Papers 9387, National Bureau of Economic Research, Inc.
    13. Florence Jaumotte & Subir Lall & Chris Papageorgiou, 2013. "Rising Income Inequality: Technology, or Trade and Financial Globalization?," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 61(2), pages 271-309, June.
    14. Paul R. Krugman, 2008. "Trade and Wages, Reconsidered," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 39(1 (Spring), pages 103-154.
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    Blog mentions

    As found by EconAcademics.org, the blog aggregator for Economics research:
    1. Ben Bernanke, in Denial? "When Growth is Not Enough"
      by Doug Campbell in Douglas L. Campbell on 2017-07-09 13:14:00

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    Cited by:

    1. Douglas L. Campbell & Lester Lusher, 2018. "The Impact of Real Exchange Rate Shocks on Manufacturing Workers: An Autopsy from the MORG," Working Papers w0223, Center for Economic and Financial Research (CEFIR).

    More about this item

    Keywords

    Inequality; Globalization; Skill-Biased Technological Change; American Manufacturings;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • N60 - Economic History - - Manufacturing and Construction - - - General, International, or Comparative
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General

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