Wage Rigidity or Fiscal Redistribution: The credibility Issue
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.
Volume (Year): 32 (2012)
Issue (Month): 4 ()
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- Hungerbühler, Mathias & Lehmann, Etienne, 2007.
"On the Optimality of a Minimum Wage: New Insights from Optimal Tax Theory,"
IZA Discussion Papers
2957, Institute for the Study of Labor (IZA).
- 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.
- Mathis Hungerbühler & Etienne Lehmann, 2007. "On the Optimality of a Minimum Wage : New Insights from Optimal Tax Theory”," Working Papers 2007-17, Centre de Recherche en Economie et Statistique.
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