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Egger & Kreickemeier on Redistributing Gains from Globalization

By Lawrence Solum

Hartmut Egger (University of Zurich - Socioeconomic Institute (SOI); CESifo (Center for Economic Studies and Ifo Institute for Economic Research)) & Udo Kreickemeier (University of Nottingham - School of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)) have posted Redistributing Gains from Globalisation on SSRN. Here is the 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.

Full post as published by Legal Theory Blog on April 07, 2009 (boomark / email).