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

Sugata Marjit

No 2016-14, Discussion Papers from University of Nottingham, GEP

Abstract: 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. Such a mechanism is likely to exist and is independent of whether the tax is progressive or proportional.

Keywords: Trade Model; Wage inequality; Compensation mechanism; Tax policy (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-sog
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Working Paper: Anti-Trade Agitation and Distribution-Neutral Tax Policy- An Elementary Framework (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:not:notgep:16/14

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