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Economic Growth and Welfare in a Simple Neoclassical OLG Model with Minimum Wage and Consumption Taxes support

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  • Luciano Fanti
  • Luca Gori

Abstract

Since little attention, despite a long lasting debate, has been paid to the effects of minimum wages on economic growth and welfare, this paper investigates such effects within a textbook OLG framework with an unemployment insurance scheme financed at balanced budget by the government with a consumption tax on the young individuals. Some new results, so far escaped closer scrutiny by the economic growth literature and which may have interesting policy implications, emerge: i) introducing minimum wages may have a favourable impact on the long run output levels; ii) under suitable conditions a regulated-wage economy performs always better than a competitive economy, iii) despite the fact that the tax rate tends to reduce the consumption of the young, the long run lifetime welfare may be greater than in the competitive economy; iv) a welfare-maximising value of the minimum wage (and thus of the proportional consumption tax rate) is picked up.

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Bibliographic Info

Paper provided by Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy in its series Discussion Papers with number 2007/68.

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Date of creation: 01 Jan 2007
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Handle: RePEc:pie:dsedps:2007/68

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Keywords: Minimum wage; Unemployment; Consumption Tax; Neoclassical Economic Growth; Welfare;

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Cited by:
  1. Luciano Fanti & Luca Gori, 2009. "Child policy solutions for the unemployment problem," Discussion Papers 2009/76, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.
  2. Luciano Fanti & Luca Gori, 2009. "Longevity, fertility and PAYG pension systems sustainability," Discussion Papers 2009/77, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.
  3. Luciano Fanti & Luca Gori, 2009. "Endogenous lifetime in an overlapping generations small open economy," Discussion Papers 2009/92, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.
  4. Luciano Fanti & Luca Gori, 2007. "Fertility, income and welfare in an OLG model with regulated wages," International Review of Economics, Springer, vol. 54(4), pages 405-427, December.
  5. Lorenzo Corsini & Elisabetta Olivieri, 2008. "Technological Change and the Wage Differential between Skilled and Unskilled Workers: Evidence from Italy," Discussion Papers 2008/73, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.
  6. Luca Gori, 2009. "Endogenous fertility, family policy and multiple equilibria," Discussion Papers 2009/79, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.
  7. Luciano Fanti & Luca Gori, 2009. "On economic growth and minimum wages," Discussion Papers 2009/78, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.
  8. Luciano Fanti & Luca Gori, 2009. "Endogenous fertility, endogenous lifetime and economic growth: the role of health and child policies," Discussion Papers 2009/91, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.
  9. Manuela Gussoni - Andrea Mangani, 2009. "The impact of public funding for innovation on firms' R&D investments: Do R&D cooperation and appropriability matter?," Discussion Papers 2009/90, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.
  10. Luciano Fanti & Luca Gori, 2008. "PAYG pensions and economic cycles: exogenous versus endogenous fertility," Discussion Papers 2008/75, Dipartimento di Scienze Economiche (DSE), University of Pisa, Pisa, Italy.

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