Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/80865
Authors: 
de Pinto, Marco
Year of Publication: 
2012
Series/Report no.: 
IAAEU Discussion Paper Series in Economics 04/2012
Abstract: 
Trade liberalization is no Pareto-improvement - there are winners (high-skilled) and losers (low-skilled). To compensate the losers the government is assumed to introduce unemployment benefits (UB). These benefits are financed by either a wage tax, a payroll tax, or a profit tax. Using a Melitz-type model of international trade with unionized labor markets and heterogeneous workers we show that: (i) there is a threshold level of UB where all trade gains are destroyed, (ii) this threshold differs between different kind of taxes, (iii) there is a clearcut ranking in terms of welfare for the chosen funding of the UB: 1. wage tax, 2. profit tax, 3. payroll tax.
Subjects: 
trade liberalization
heterogeneous firms
trade unions
skill-specific unemployment
unemployment benefits
taxes
JEL: 
F1
F16
H2
Document Type: 
Working Paper

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