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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
    Date of revision:
    Handle: RePEc:iaa:dpaper:201206
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    2. Kjell Erik Lommerud & Bjørn Sandvik & Odd Rune Straume, 2004. "Good Jobs, Bad Jobs and Redistribution," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(4), pages 703-720, December.
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    7. Hartmut Egger & Udo Kreickemeier, . "Fairness, Trade, and Inequality," Discussion Papers 08/19, University of Nottingham, GEP.
    8. Layard, Richard & Nickell, Stephen & Jackman, Richard, 2005. "Unemployment: Macroeconomic Performance and the Labour Market," OUP Catalogue, Oxford University Press, number 9780199279173, July.
    9. Richard Layard & Stephen Nickell, 1990. "Is Unemployment Lower if Unions Bargain over Employment?," The Quarterly Journal of Economics, Oxford University Press, vol. 105(3), pages 773-787.
    10. Conchita D'Ambrosio & Joachim R. Frick, 2007. "Individual Well-Being in a Dynamic Perspective," SOEPpapers on Multidisciplinary Panel Data Research 5, DIW Berlin, The German Socio-Economic Panel (SOEP).
    11. 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.
    12. Marco Pinto & Jochen Michaelis, 2014. "International Trade and Unemployment—the Worker-selection Effect," Review of International Economics, Wiley Blackwell, vol. 22(2), pages 226-252, 05.
    13. Haan, Peter & Prowse, Victoria L., 2010. "The Design of Unemployment Transfers: Evidence from a Dynamic Structural Life-Cycle Model," IZA Discussion Papers 4792, Institute for the Study of Labor (IZA).
    14. Harrison, Glenn W. & Rutherford, Thomas F. & Tarr, David G., 2003. "Trade liberalization, poverty and efficient equity," Journal of Development Economics, Elsevier, vol. 71(1), pages 97-128, June.
    15. Goerke, L., 1996. "Taxes on payroll, revenues and profits in three models of collective bargaining," Discussion Paper Series In Economics And Econometrics 9603, Economics Division, School of Social Sciences, University of Southampton.
    16. 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.
    17. Amiti, Mary & Davis, Donald R, 2008. "Trade, Firms, and Wages: Theory and Evidence," CEPR Discussion Papers 6872, C.E.P.R. Discussion Papers.
    18. Felbermayr, Gabriel & Prat, Julien & Schmerer, Hans-Jörg, 2008. "Globalization and Labor Market Outcomes: Wage Bargaining, Search Frictions, and Firm Heterogeneity," IZA Discussion Papers 3363, Institute for the Study of Labor (IZA).
    19. Nickell, Stephen & Kong, Paul, 1992. "An investigation into the power of insiders in wage determination," European Economic Review, Elsevier, vol. 36(8), pages 1573-1599, December.
    20. Jochen Michaelis & Michael Pflüger, 2000. "The impact of tax reforms on unemployment in a SMOPEC," Journal of Economics, Springer, vol. 72(2), pages 175-201, June.
    21. Booth, Alison L, 1984. "A Public Choice Model of Trade Union Behaviour and Membership," Economic Journal, Royal Economic Society, vol. 94(376), pages 883-98, December.
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