Labour Market Institutions and the Cohesion of the Middle Class

Gilles Saint-Paul

No 1298, CEPR Discussion Papers from C.E.P.R. Discussion Papers

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 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.

Keywords: Income Distribution; Social Cohesion; Taxation; Unemployment; Wage Rigidity (search for similar items in EconPapers)
JEL-codes: E24 E62 E64 H2 J3 (search for similar items in EconPapers)
Date: 1995-11
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Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Labor market institutions and the cohesion of the middle class (1996)
Working Paper: Labour Market Institutions and the Cohesion of the Middle Class (1995)
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