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Discussion Paper Details

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Title: Labour Market Institutions and the Cohesion of the Middle Class

Author(s): Gilles Saint-Paul

Publication Date: November 1995

Keyword(s): Income Distribution, Social Cohesion, Taxation, Unemployment and Wage Rigidity

Programme Area(s): Human Resources and International Macroeconomics

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.

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Bibliographic Reference

Saint-Paul, G. 1995. 'Labour Market Institutions and the Cohesion of the Middle Class'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=1298