Don't blame globalisation for the squeezing of the middle class. CEPS Policy Brief, No. 121, 2 February 2007

Globalisation is being blamed for the squeezing of the middle class and protectionism is being offered as a solution. We argue in this paper that the increase in inequality is a long-term trend resulting from a variety of factors, including the decline in manufacturing, the reduction in the progressivity of taxation and the steady increase in asset prices, and that globalisation has only had a marginal impact on it. Protectionism will not reverse any of these trends. We discuss some policy options aimed at cushioning this increase in inequality and argue that they will likely result in expanding fiscal deficits and pressure on central banks to test the limits of growth