Labour Market Institutions and the Cohesion of the Middle Class
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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- Alberto Alesina & Dani Rodrik, 1991.
"Distributive Politics and Economic Growth,"
NBER Working Papers
3668, National Bureau of Economic Research, Inc.
- Saint-Paul, G. & Verdier, T., 1991.
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DELTA Working Papers
91-27, DELTA (Ecole normale supérieure).
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"Some Political Aspects of Unemployment,"
DELTA Working Papers
94-03, DELTA (Ecole normale supérieure).
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"On the Political Economy of Labour Market Flexibility,"
CEPR Discussion Papers
803, C.E.P.R. Discussion Papers.
- Gilles Saint-Paul, 1993. "On the Political Economy of Labor Market Flexibility," NBER Chapters, in: NBER Macroeconomics Annual 1993, Volume 8, pages 151-196 National Bureau of Economic Research, Inc.
- Saint-Paul, G., 1993. "On the Political Economy of Labor Market Flexibility," DELTA Working Papers 93-02, DELTA (Ecole normale supérieure).
- Persson, Torsten & Tabellini, Guido, 1994.
"Is Inequality Harmful for Growth?,"
American Economic Review,
American Economic Association, vol. 84(3), pages 600-621, June.
- 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.
- Agell, Jonas & Lommerud, Kjell Erik, 1993. " Egalitarianism and Growth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 95(4), pages 559-579, December.
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