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Labour Market Institutions and the Cohesion of the Middle Class

  • Saint-Paul, Gilles

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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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 1298.

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Date of creation: Nov 1995
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Handle: RePEc:cpr:ceprdp:1298
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  1. Saint-Paul, Gilles, 1993. "On the Political Economy of Labour Market Flexibility," CEPR Discussion Papers 803, C.E.P.R. Discussion Papers.
  2. Rodrik, Dani & Alesina, Alberto, 1994. "Distributive Politics and Economic Growth," Scholarly Articles 4551798, Harvard University Department of Economics.
  3. Saint-Paul, G., 1994. "Some Political Aspects of Unemployment," DELTA Working Papers 94-03, DELTA (Ecole normale supérieure).
  4. Agell, Jonas & Lommerud, Kjell Erik, 1993. " Egalitarianism and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 559-79, December.
  5. Persson, T. & Tabellini, G., 1993. "Is Inequality Harmful for Growth," Papers 537, Stockholm - International Economic Studies.
  6. Saint-Paul, Gilles & Verdier, Thierry, 1993. "Education, democracy and growth," Journal of Development Economics, Elsevier, vol. 42(2), pages 399-407, December.
  7. 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.
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