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

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  • Marco de Pinto

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

Abstract

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.

Suggested Citation

  • Marco de Pinto, 2012. "The Redistribution of Trade Gains and the Equity-Efficiency Trade-Off," IAAEU Discussion Papers 201206, Institute of Labour Law and Industrial Relations in the European Union (IAAEU).
    • Handle: RePEc:iaa:dpaper:201206
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    References listed on IDEAS

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    More about this item

    Keywords

    trade liberalization; heterogeneous firms; trade unions; income unequality; unemployment benefits; taxes;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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