The Redistribution of Trade Gains When Income Inequality Matters

Economies

Marco de Pinto¹ 

[1] Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University, Behringstr. 21, D-54296 Trier, Germany; E-Mail

关键词: trade liberalization;    redistribution;    income inequality;    heterogeneity;    trade unions;   

DOI  :  10.3390/economies3040186

来源: mdpi

【 摘 要 】

How does a redistribution of trade gains affect welfare when income inequality matters? To answer this question, we extend the [1] model to unionized labor markets and heterogeneous workers. As redistribution schemes, we consider unemployment benefits that are financed either by a wage tax, a payroll tax or a profit tax. Assuming that welfare declines in income inequality, we find that welfare increases up to a maximum in the case of wage tax funding, while welfare declines weakly (sharply) if a profit tax (payroll tax) is implemented. These effects are caused by the wage tax neutrality (due to union wage setting) and by a profit tax-induced decline in long-term unemployment. As a result, the government’s optimal redistribution scheme is to finance unemployment benefits by a wage tax.

【 授权许可】

CC BY   
© 2015 by the authors; licensee MDPI, Basel, Switzerland.