Taxation of labour income and the skilled–unskilled wage inequality

Sajid Anwar and Sizhong Sun

Economic Modelling, 2015, vol. 47, issue C, 18-22

Abstract: Using a simple general equilibrium model of a small open economy that produces (i) an industrial good, (ii) an agricultural good, and (iii) a sector specific intermediate good, under competitive conditions, this paper examines the impact of a tax on labour on skilled–unskilled wage inequality. It is shown that, when all goods are traded, a tax on labour in the industrial sector increases skilled–unskilled wage inequality. On the other hand, a tax on labour in the intermediate good sector has the opposite effect. However, when the intermediate good is non-traded, the impact of a tax on labour in either of the two sectors is negative. Furthermore, irrespective of whether or not the intermediate good is traded, a tax on labour in the agricultural sector increases skilled–skilled wage inequality.

Keywords: Skilled–unskilled wage inequality; Partial tax on labour; Sector specific intermediate goods; Globalisation; Non-traded goods (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (16)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecmode:v:47:y:2015:i:c:p:18-22

DOI: 10.1016/j.econmod.2014.12.037

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