Labor Market Institutions and the Cohesion of the Middle Class

INTERNATIONAL TAX AND PUBLIC FINANCE, Vol. 3, Issue 3, 1996

Posted: 7 May 1998

See all articles by Gilles Saint-Paul

Gilles Saint-Paul

University of Toulouse I - GREMAQ-IDEI; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute); IZA Institute of Labor Economics

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.

JEL Classification: J31, H23

Suggested Citation

Saint-Paul, Gilles, Labor Market Institutions and the Cohesion of the Middle Class. INTERNATIONAL TAX AND PUBLIC FINANCE, Vol. 3, Issue 3, 1996. Available at SSRN: https://ssrn.com/abstract=3164

Gilles Saint-Paul (Contact Author)

University of Toulouse I - GREMAQ-IDEI ( email )

Manufacture des Tabacs
21 Allees de Brienne
Toulouse, 31000
France
+33 5 6112 8544 (Phone)
+33 5 6122 5563 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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