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Unemployment Benefits as Redistribution Scheme of Trade Gains - a Positive Analysis

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  • Marco de Pinto

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.

Suggested Citation

  • Marco de Pinto, 2012. "Unemployment Benefits as Redistribution Scheme of Trade Gains - a Positive Analysis," FIW Working Paper series 092, FIW.
    • Handle: RePEc:wsr:wpaper:y:2012:i:092
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    References listed on IDEAS

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    2. Using unemployment insurance to compensate for losses from opening trade
      by Economic Logician in Economic Logic on 2012-06-15 19:14:00

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    More about this item

    Keywords

    trade liberalization; heterogeneous firms; trade unions; skillspecific unemployment; unemployment benefits; taxes;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

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