Unemployment Benefits as Redistribution Scheme of Trade Gains - a Positive Analysis
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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 profitax. 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 clear cut ranking in terms of welfare
for the chosen funding of the UB: 1. wagetax, 2. profittax, 3. payroll
tax.
Keywords
tradeliberalization,heterogeneousfirms,tradeunions, skill-specificunemployment,unemploymentbenefits,taxes