| 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 ower 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.CERAS is a CNRS associate unit, while DELTA is a joint research unit ENS-CNRS-EHESS. This paper was prepared for the International Institute for Public Finance Congress, Lisbon, August 1995. |
