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Title:Wage rigidity or fiscal redistribution? The unemployment bias of time consistent redistributive policies PDF Logo
Authors:Lehmann, Etienne
Issue Date:2006
Series/Report no.:IZA Discussion Papers 2116
Abstract:Because of Time Inconsistency considerations, policymakers underestimate the drawbacks of wage rigidity as a redistributive tool. Consequently, they redistribute inefficiently income from high to low skilled workers. They typically implement too much wage rigidity whereas other means (in particular fiscal transfers) could achieve the same redistributive goal with less perverse effect on unemployment. Time inconsistency is more likely due to lack of credibility than to the short-term horizon of policymakers. Hence, policymaking processes should be reformed towards more transparent and binding agreements between government and social partners.
Subjects:unemployment
inequality
wage rigidity
time inconsistency
JEL:D78
H2
J68
Document Type:Working Paper
Appears in Collections:IZA Discussion Papers, Forschungsinstitut zur Zukunft der Arbeit (IZA)

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