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Trade Shocks, Taxes, and Inequality

Listed author(s):
  • Douglas L. Campbell

    ()

    (New Economic School (NES))

  • Lester Lusher

    ()

    (UC Davis)

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.

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Paper provided by Center for Economic and Financial Research (CEFIR) in its series Working Papers with number w0220.

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Length: 63 pages
Date of creation: May 2016
Handle: RePEc:cfr:cefirw:w0220
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  1. Robert C. Feenstra & Gordon H. Hanson, 1999. "The Impact of Outsourcing and High-Technology Capital on Wages: Estimates For the United States, 1979–1990," The Quarterly Journal of Economics, Oxford University Press, vol. 114(3), pages 907-940.
  2. David H. Autor & David Dorn & Gordon H. Hanson, 2013. "The China Syndrome: Local Labor Market Effects of Import Competition in the United States," American Economic Review, American Economic Association, vol. 103(6), pages 2121-2168, October.
  3. Steven N. Kaplan & Joshua Rauh, 2010. "Wall Street and Main Street: What Contributes to the Rise in the Highest Incomes?," NBER Chapters,in: Corporate Governance National Bureau of Economic Research, Inc.
  4. 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.
  5. Douglas L. Campbell, 2014. "Through the Looking Glass: A WARPed View of Real Exchange Rate History," Working Papers w0210, Center for Economic and Financial Research (CEFIR).
  6. Roine, Jesper & Vlachos, Jonas & Waldenström, Daniel, 2009. "The long-run determinants of inequality: What can we learn from top income data?," Journal of Public Economics, Elsevier, vol. 93(7-8), pages 974-988, August.
  7. Christoph Lakner & Branko Milanovic, 2016. "Global Income Distribution: From the Fall of the Berlin Wall to the Great Recession," World Bank Economic Review, World Bank Group, vol. 30(2), pages 203-232.
  8. James M. Poterba, 1993. "Tax Policy and the Economy, Volume 7," NBER Books, National Bureau of Economic Research, Inc, number pote93-1.
  9. Robert C. Feenstra, 2015. "Advanced International Trade: Theory and Evidence Second Edition," Economics Books, Princeton University Press, edition 2, number 10615, 09-2014.
  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. James M. Poterba (ed.), 1993. "Tax Policy and the Economy, Volume 7," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262660814, July.
  13. William R. Cline, 1997. "Trade and Income Distribution," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 58, November.
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