Trade and the political economy of redistribution

Vannoorenberghe, Gonzague ; Janeba, Eckhard

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URN: urn:nbn:de:bsz:180-madoc-382440
Document Type: Working paper
Year of publication: 2013
Place of publication: Mannheim
Publication language: English
Institution: School of Law and Economics > Finanzwissenschaft u. Wirtschaftspolitik (Janeba 2004-)
Subject: 330 Economics
Classification: JEL: F1, H2,
Keywords (English): 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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