Title: Why do politicians in developed nations prefer foreign trade policy to income redistribution to counteract income inequality resulting from globalisation?

Authors: Marcus Marktanner

Addresses: Friedrich-Alexander University Erlangen, Nuremberg, Germany

Abstract: Why is, in developed nations, foreign trade policy favoured to direct income redistribution to counteract rising income inequality resulting from globalisation? Foreign trade theory suggests that a politician|s wisest policy was to capture all welfare gains from free trade and to redistribute some of the winners| gains to the losers. By implementing votes and budget maximisation goals of a politician into the analysis, it is shown that, in fact, it might be politically reasonable to redistribute income indirectly through trade policy. However, this will be identified as a potential rationality trap demanding for institutional changes of the global trade architecture.

Keywords: foreign trade policy; income redistribution; globalisation; income inequality; indirect redistribution; global trade; free trade; political support; welfare.

DOI: 10.1504/GBER.2000.006162

Global Business and Economics Review, 2000 Vol.2 No.2, pp.235 - 245

Published online: 07 Feb 2005 *

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