Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/167727
Authors: 
De Pinto, Marco
Year of Publication: 
2015
Citation: 
[Journal:] Economies [ISSN:] 2227-7099 [Volume:] 3 [Year:] 2015 [Issue:] 4 [Pages:] 186-215
Abstract: 
How does a redistribution of trade gains affect welfare when income inequality matters? To answer this question, we extend the [1] model to unionized labor markets and heterogeneous workers. As redistribution schemes, we consider unemployment benefits that are financed either by a wage tax, a payroll tax or a profit tax. Assuming that welfare declines in income inequality, we find that welfare increases up to a maximum in the case of wage tax funding, while welfare declines weakly (sharply) if a profit tax (payroll tax) is implemented. These effects are caused by the wage tax neutrality (due to union wage setting) and by a profit tax-induced decline in long-term unemployment. As a result, the government's optimal redistribution scheme is to finance unemployment benefits by a wage tax.
Subjects: 
trade liberalization
redistribution
income inequality
heterogeneity
trade unions
JEL: 
F1
F16
H2
Persistent Identifier of the first edition: 
Creative Commons License: 
http://creativecommons.org/licenses/by/4.0/
Document Type: 
Article

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