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Manon Domingues dos santos and Etienne Lehmann
''Wage Rigidity or Fiscal Redistribution: The credibility Issue''
( 2012, Vol. 32 No.4 )
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.
Keywords: Unemployment, Inequality, Wage Rigidity, Credibility, Time Inconsistency
JEL: H2 - Taxation, Subsidies, and Revenue: General
J6 - Mobility, Unemployment, and Vacancies: General
Manuscript Received : Jun 12 2012 Manuscript Accepted : Oct 09 2012

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