Taxation of labour, product varieties and skilled–unskilled wage inequality: Short run versus long run

Sizhong Sun and Sajid Anwar

International Review of Economics & Finance, 2015, vol. 38, issue C, 250-257

Abstract: In a three-sector general equilibrium model, we examine the impact of a partial tax on labour on skilled–unskilled wage inequality. We find that a tax on labour in industrial sector increases skilled–unskilled wage inequality in the short run and can have the opposite effect in the long run. A tax on labour in the services sector reduces skilled–unskilled wage inequality in both the short run and long run. Furthermore, the introduction of a tax on labour in agricultural sector has no effect on the skilled wage but reduces the unskilled wage. Accordingly, such a tax increases skilled–unskilled wage inequality in both the short run and long run.

Keywords: Skilled–unskilled wage inequality; Partial tax on labour; Product varieties; Monopolistic competition (search for similar items in EconPapers)
JEL-codes: D00 H24 J31 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (10)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:38:y:2015:i:c:p:250-257

DOI: 10.1016/j.iref.2015.03.001

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