Redistributing Gains from Globalisation

Hartmut Egger () and Udo Kreickemeier

Discussion Papers from University of Nottingham, GEP

Abstract: This paper analyses the effects of redistribution in a model of international trade with heterogeneous firms in which a fair-wage effort mechanism leads to firm-specific wage payments and involuntary unemployment. The redistribution scheme is financed by profit taxes and gives the same absolute lump-sum transfer to all workers. In this setting a higher tax rate reduces aggregate labour income and makes the income distribution more equal, with unemployment remaining unaffected. International trade increases aggregate income, income inequality and the unemployment rate, ceteris paribus. If, however, trade is accompanied by a suitably chosen increase in the profit tax rate, it is possible to achieve higher aggregate income and a more equal income distribution than in autarky, provided that the share of exporters is sufficiently high.

Keywords: Redistribution; Heterogeneous Firms; Fair Wages; Wage Inequality; Unemployment; Trade Liberalisation (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (1)

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Related works:
Chapter: Redistributing Gains from Globalization (2017)
Journal Article: Redistributing Gains from Globalisation (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notgep:08/29

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