Trade and the Political Economy of Redistribution

51 Pages Posted: 23 Jan 2013

See all articles by Gonzague Vannoorenberghe

Gonzague Vannoorenberghe

Tilburg University

Eckhard Janeba

University of Mannheim - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: January 23, 2013

Abstract

This paper analyzes the effects of trade liberalisation on the political support 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 inefficiency 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 voters 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.

Keywords: international trade, redistribution, political economy, factor mobility

JEL Classification: F100, H200

Suggested Citation

Vannoorenberghe, Gonzague and Janeba, Eckhard, Trade and the Political Economy of Redistribution (January 23, 2013). CESifo Working Paper Series No. 4062. Available at SSRN: https://ssrn.com/abstract=2205612

Gonzague Vannoorenberghe

Tilburg University ( email )

P.O. Box 90153
Tilburg, DC 5000 LE
Netherlands

Eckhard Janeba (Contact Author)

University of Mannheim - Department of Economics ( email )

L7, 3-5
D-68131 Mannheim
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

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