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Anti-Trade Agitation and Distribution-Neutral Tax Policy- An Elementary Framework

Listed author(s):
  • Marjit, Sugata

The recent Brexit episode is being interpreted in some quarters as an anti-globalisation backlash. Free trade does not promise gains for all without a proper compensating mechanism that allows winners to bribe the losers. Also standard prediction of trade theory does point towards increasing wage inequality for the relatively skill abundant developed world. Theoretical discussion on compensating mechanism that addresses inequality is rare in trade literature. In a simple HOS model we consider tax policies that keep the pre-trade degree of inequality unchanged between skilled and unskilled workers. We discuss the problem of existence of such an inequality-neutral tax rate that generates a positive increment in the after tax skilled wage. Existence of such a mechanism is contingent on the initial degree of inequality and is independent of whether the tax is progressive or proportional.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 73110.

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Date of creation: Aug 2016
Handle: RePEc:pra:mprapa:73110
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  1. Subhayu Bandyopadhyay & Sugata Marjit & Lei Yang, 2014. "International oligopoly, barriers to outsourcing and domestic employment," Canadian Journal of Economics, Canadian Economics Association, vol. 47(4), pages 1372-1386, November.
  2. Chakrabarti, Avik, 2004. "Asymmetric adjustment costs in simple general equilibrium models," European Economic Review, Elsevier, vol. 48(1), pages 63-73, February.
  3. Robert C. Feenstra, 2010. "Offshoring in the Global Economy: Microeconomic Structure and Macroeconomic Implications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262013835, December.
  4. A. B. Atkinson, 2009. "Factor shares: the principal problem of political economy?," Oxford Review of Economic Policy, Oxford University Press, vol. 25(1), pages 3-16, Spring.
  5. Krugman, Paul R., 2000. "Technology, trade and factor prices," Journal of International Economics, Elsevier, vol. 50(1), pages 51-71, February.
  6. 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.
  7. Davis, Donald R. & Harrigan, James, 2011. "Good jobs, bad jobs, and trade liberalization," Journal of International Economics, Elsevier, vol. 84(1), pages 26-36, May.
  8. Sugata Marjit & Hamid Beladi & Avik Chakrabarti, 2004. "Trade and Wage Inequality in Developing Countries," Economic Inquiry, Western Economic Association International, vol. 42(2), pages 295-303, April.
  9. Anthony B. Atkinson, 2000. "The Changing Distribution of Income: Evidence and Explanations," German Economic Review, Verein für Socialpolitik, vol. 1(1), pages 3-18, 02.
  10. Davis, Donald R, 1998. "Does European Unemployment Prop Up American Wages? National Labor Markets and Global Trade," American Economic Review, American Economic Association, vol. 88(3), pages 478-494, June.
  11. Jones, Ronald W & Engerman, Stanley L, 1996. "Trade, Technology, and Wages: A Tale of Two Countries," American Economic Review, American Economic Association, vol. 86(2), pages 35-40, May.
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