Unemployment Benefits as Redistribution Scheme of Trade Gains - a Positive Analysis

Marco de Pinto

No 92, FIW Working Paper series from FIW

Abstract: Trade liberalization is no Pareto-improvement - there are winners (high-skilled) and losers (low-skilled). To compensate the losers the government is assumed to introduce unemployment benefits (UB). These benefits are financed by either a wage tax, a payroll tax, or a profit tax. Using a Melitz-type model of international trade with unionized labor markets and heterogeneous workers we show that: (i) there is a threshold level of UB where all trade gains are destroyed, (ii) this threshold differs between different kind of taxes, (iii) there is a clearcut ranking in terms of welfare for the chosen funding of the UB: 1. wage tax, 2. profit tax, 3. Payroll tax.

Keywords: trade liberalization; heterogeneous firms; trade unions; skillspecific unemployment; unemployment benefits; taxes (search for similar items in EconPapers)
JEL-codes: F1 F16 H2 (search for similar items in EconPapers)
Pages: 41
Date: 2012-05
New Economics Papers: this item is included in nep-int and nep-lab
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Citations: View citations in EconPapers (1)

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