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Minimum wage or negative income tax: why skilled workers may favor wage rigidities


  • Maya Bacache-Beauvallet


  • Etienne Lehmann



This article studies the political choice over the extent and the means of income redistribution between high and low skilled workers. Redistributive tools encompass fiscal transfers with negative income tax and minimum wage. Using fiscal instruments only is assumed optimal. We show that high skilled workers may favor a second-best minimum wage requirement. This is because minimum wage increases unemployment, hence the marginal cost of redistribution is higher which gives a pretext for high skilled workers to moderate low skilled workers claim for income redistribution.
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Suggested Citation

  • Maya Bacache-Beauvallet & Etienne Lehmann, 2008. "Minimum wage or negative income tax: why skilled workers may favor wage rigidities," Spanish Economic Review, Springer;Spanish Economic Association, vol. 10(1), pages 63-81, March.
  • Handle: RePEc:spr:specre:v:10:y:2008:i:1:p:63-81 DOI: 10.1007/s10108-007-9034-2

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    References listed on IDEAS

    1. Piketty, Thomas, 1999. "Can fiscal redistribution undo skill-biased technical change?: Evidence from the French experience," European Economic Review, Elsevier, vol. 43(4-6), pages 839-851, April.
    2. Herwig Immervoll, 2004. "Average and Marginal Effective Tax Rates Facing Workers in the EU: A Micro-Level Analysis of Levels, Distributions and Driving Factors," OECD Social, Employment and Migration Working Papers 19, OECD Publishing.
    3. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics,in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482 Elsevier.
    4. Steve Nickell & Jan van Ours, 2000. "The Netherlands and the United Kingdom: a European unemployment miracle?," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 135-180, April.
    5. Russell S. Sobel, 1999. "Theory and Evidence on the Political Economy of the Minimum Wage," Journal of Political Economy, University of Chicago Press, vol. 107(4), pages 761-785, August.
    6. Gilles Saint-Paul, 1996. "Labor market institutions and the cohesion of the middle class," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(3), pages 385-395, July.
    7. Kau, James B & Rubin, Paul H, 1978. "Voting on Minimum Wages: A Time-Series Analysis," Journal of Political Economy, University of Chicago Press, vol. 86(2), pages 337-342, April.
    8. Epstein, Gil S. & Nitzan, Shmuel, 1999. "The Endogenous Determination of Minimum Wage," IZA Discussion Papers 73, Institute for the Study of Labor (IZA).
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    Cited by:

    1. Lee, David & Saez, Emmanuel, 2012. "Optimal minimum wage policy in competitive labor markets," Journal of Public Economics, Elsevier, vol. 96(9-10), pages 739-749.
    2. repec:pri:cepsud:178lee is not listed on IDEAS
    3. David S. Lee & Emmanuel Saez, 2008. "Optimal Minimum Wage Policy in Competitive Labor Markets," Working Papers 1105, Princeton University, Department of Economics, Industrial Relations Section..

    More about this item


    Unemployment; Political economics; Income redistribution; Minimum wage; D78; E24; H23; J38;

    JEL classification:

    • D78 - Microeconomics - - Analysis of Collective Decision-Making - - - Positive Analysis of Policy Formulation and Implementation
    • E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy


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