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Labor market institutions and the cohesion of the middle class

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  • Gilles Saint-Paul

Abstract

We develop a simple model to study how relative wage rigidity affects equilibrium taxation. It is argued that relative wage rigidity, by compressing incomes within the middle class, leads to a lower degree of redistributive conflict within the politically important core of society, even though income inequality may increase for society as a whole. In the model, people vote first on wage rigidity and second on redistributive taxation. The rigid society has a lower tax rate than the flexible one. it is supported by the 'middle-class' in the first stage, while the poor, the rich and the unemployed suffer from it.

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File URL: http://hdl.handle.net/10.1007/BF00418951
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Bibliographic Info

Article provided by Springer in its journal International Tax and Public Finance.

Volume (Year): 3 (1996)
Issue (Month): 3 (July)
Pages: 385-395

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Handle: RePEc:kap:itaxpf:v:3:y:1996:i:3:p:385-395

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Web page: http://www.springerlink.com/link.asp?id=102915

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References

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  1. Saint-Paul, G., 1993. "On the Political Economy of Labor Market Flexibility," DELTA Working Papers 93-02, DELTA (Ecole normale supérieure).
  2. Saint-Paul, Gilles, 1995. "Some political aspects of unemployment," European Economic Review, Elsevier, vol. 39(3-4), pages 575-582, April.
  3. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  4. Alberto Alesina & Dani Rodrik, 1991. "Distributive Politics and Economic Growth," NBER Working Papers 3668, National Bureau of Economic Research, Inc.
  5. Saint-Paul, G. & Verdier, T., 1991. "Education, Democracy and growth," DELTA Working Papers 91-27, DELTA (Ecole normale supérieure).
  6. Wright, Randall, 1986. "The redistributive roles of unemployment insurance and the dynamics of voting," Journal of Public Economics, Elsevier, vol. 31(3), pages 377-399, December.
  7. Agell, Jonas & Lommerud, Kjell Erik, 1993. " Egalitarianism and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 559-79, December.
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Cited by:
  1. Bacache-Beauvallet, Maya & Lehmann, Etienne, 2005. "Minimum Wage or Negative Income Tax: Why Skilled Workers May Favor Wage Rigidities," IZA Discussion Papers 1570, Institute for the Study of Labor (IZA).
  2. Schöb, Ronnie & Wildasin, David, 2003. "Economic Integration and Labor Market Institutions: Worker Mobility, Earnings Risk, and Contract Structure," IZA Discussion Papers 945, Institute for the Study of Labor (IZA).
  3. Wasmer, E., 1998. "Labour Supply Dynamics, Unemployment and Human Capital Investments," Papers 651, Stockholm - International Economic Studies.

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