Wage Rigidity or Fiscal Redistribution: The credibility Issue

Domingues Dos Santos, Manon;Lehmann, Etienne
(2012) Economics Bulletin — Vol. 32, n° 4, p. 2801-2807 (2012)

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  • Domingues Dos Santos, ManonUniversité de Paris Est
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  • Lehmann, EtienneCREST
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Abstract
We show that lack of commitment in the policymaking process may explain the prevalence of the minimum wage to redistribute income, despite its negative impact on unemployment. In the absence of commitment, firms anticipate the government's willingness to use a minimum wage policy to reduce the tax collecting costs implied by fiscal transfers. This expectation leads to a reduction in the labor demand that generates unemployment.
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Domingues Dos Santos, M., & Lehmann, E. (2012). Wage Rigidity or Fiscal Redistribution: The credibility Issue. Economics Bulletin, 32(4), 2801-2807. https://hdl.handle.net/2078.5/207499 (Original work published 2012)