Abstract
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 ower 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.
Original language | English (US) |
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Pages (from-to) | 385-395 |
Number of pages | 11 |
Journal | International Tax and Public Finance |
Volume | 3 |
Issue number | 3 |
DOIs | |
State | Published - 1996 |
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics