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Labor market institutions and the cohesion of the middle class

  • Gilles Saint-Paul

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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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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  1. Agell, Jonas & Lommerud, Kjell Erik, 1993. " Egalitarianism and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 559-79, December.
  2. Alesina, Alberto & Rodrik, Dani, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 109(2), pages 465-90, May.
  3. Saint-Paul, Gilles & Verdier, Thierry, 1992. "Education, Democracy and Growth," CEPR Discussion Papers 613, C.E.P.R. Discussion Papers.
  4. Saint-Paul, G., 1993. "On the Political Economy of Labor Market Flexibility," DELTA Working Papers 93-02, DELTA (Ecole normale supérieure).
  5. Persson, Torsten & Tabellini, Guido, 1994. "Is Inequality Harmful for Growth?," American Economic Review, American Economic Association, vol. 84(3), pages 600-621, June.
  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. Saint-Paul, Gilles, 1995. "Some political aspects of unemployment," European Economic Review, Elsevier, vol. 39(3-4), pages 575-582, April.
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