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Wage Rigidity or Fiscal Redistribution: The credibility Issue

Author

Listed:
  • Manon Domingues dos santos

    (Université Paris-Est ERUDITE)

  • Etienne Lehmann

    (CREST)

Abstract

We show that lack of commitment in the policymaking process may explain the prevalence of the minimum wage to redistribute income, despite its negative impact on unemployment. In the absence of commitment, firms anticipate the government's willingness to use a minimum wage policy to reduce the tax collecting costs implied by fiscal transfers. This expectation leads to a reduction in the labor demand that generates unemployment.

Suggested Citation

  • Manon Domingues dos santos & Etienne Lehmann, 2012. "Wage Rigidity or Fiscal Redistribution: The credibility Issue," Economics Bulletin, AccessEcon, vol. 32(4), pages 2801-2807.
    • Handle: RePEc:ebl:ecbull:eb-12-00451
    as

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    References listed on IDEAS

    as
    1. Hungerbühler, Mathias & Lehmann, Etienne, 2009. "On the optimality of a minimum wage: New insights from optimal tax theory," Journal of Public Economics, Elsevier, vol. 93(3-4), pages 464-481, April.
    2. Barro, Robert J & Gordon, David B, 1983. "A Positive Theory of Monetary Policy in a Natural Rate Model," Journal of Political Economy, University of Chicago Press, vol. 91(4), pages 589-610, August.
    3. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Unemployment; Inequality; Wage Rigidity; Credibility; Time Inconsistency;
    All these keywords.

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers

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