International trade , redistribution , political economy , factor mobility
Abstract:
This paper analyzes the effects of trade liberalisation on the political sup-
port for policies that redistribute income between workers in different sectors.
We allow for worker heterogeneity and imperfect mobility of workers across
sectors, giving rise to a trade-off between redistribution and the ineficiency
of the labor allocation. We compare two environments, autarky and small
open economy, and present three main findings. First, redistributive policies
are more \likely" to arise in a small open than in a closed economy. Second,
if a redistributive policy is adopted in both situations, its nominal level is
higher in autarky than in the small open economy. Third, even though vot-
ers choose redistributive policies with lower nominal value in open economies,
the actual extent of redistribution in equilibrium is larger in the open than
in the closed economy. We discuss our results in the context of the debate
about the effects of globalisation on government activity.
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