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.
| Identifer | oai:union.ndltd.org:DRESDEN/oai:qucosa.de:bsz:14-qucosa-217393 |
| Date | 12 January 2017 |
| Creators | Kohl, Miriam |
| Contributors | Technische Universität Dresden, Fakultät Wirtschaftswissenschaften |
| Publisher | Saechsische Landesbibliothek- Staats- und Universitaetsbibliothek Dresden |
| Source Sets | Hochschulschriftenserver (HSSS) der SLUB Dresden |
| Language | English |
| Detected Language | English |
| Type | doc-type:workingPaper |
| Format | application/pdf |
| Relation | dcterms:isPartOf:CEPIE Working Paper ; 01/17 |
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