Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/149133
Authors: 
Kohl, Miriam
Year of Publication: 
2017
Series/Report no.: 
CEPIE Working Paper 01/17
Abstract: 
This paper investigates the effects of international trade in a general equilibrium model with heterogeneous firms where a welfare state redistributes income. We look at a very stylised progressive non-distortionary redistribution scheme. We show that for a given tax rate international trade increases income per capita, but also leads to higher income inequality. Two aspects of income inequality are examined. First, inter-group inequality between managers and workers is considered. Second, intra-group inequality within the group of managers is investigated. For a given tax rate the size of the welfare state and therefore the transfer per capita increases when going from autarky to trade. This second-round effect counteracts the primary increase in inequality, yet cannot outweigh it. Since the redistribution scheme is non-distortionary, it is possible to decrease trade-induced inequality by increasing the tax rate without jeopardising the gains from trade.
Subjects: 
International trade
Income inequality
Redistribution
Heterogeneous firms
JEL: 
D31
F12
F16
H24
H25
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

Files in This Item:
File
Size
332.19 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.