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

  • Marco de Pinto


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

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    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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    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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