Labor Market Institutions and the Cohesion of the Middle Class

Gilles Saint-Paul

Research output: Contribution to journalArticlepeer-review

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 languageEnglish (US)
Pages (from-to)385-395
Number of pages11
JournalInternational Tax and Public Finance
Volume3
Issue number3
DOIs
StatePublished - 1996

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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