Taxation of labour, product varieties and skilled-unskilled wage inequality: short run versus long run

In a three-sector general equilibrium model, we examine the impact of a partial tax on labour on skilled unskilled wage inequality. We find that a tax on labour in industrial sector increases skilled unskilled wage inequality in the short run and can have the opposite effect in the long run. A tax on labour in the services sector reduces skilled unskilled wage inequality in both the short run and long run. Furthermore, the introduction of a tax on labour in agricultural sector has no effect on the skilled wage but reduces the unskilled wage. Accordingly, such a tax increases skilled unskilled wage inequality in both the short run and long run.

International Review of Economics & Finance

International Review of Economics & Finance

38

1873-8036

N/A

N/A

8