Taxation of labour income and the skilled-unskilled wage inequality

Anwar, Sajid, and Sun, Sizhong (2015) Taxation of labour income and the skilled-unskilled wage inequality. Economic Modelling, 47. pp. 18-22.

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Abstract

Using a simple general equilibrium model of a small open economy that produces (i) an industrial good, (ii) an agricultural good, and (iii) a sector specific intermediate good, under competitive conditions, this paper examines the impact of a tax on labour on skilled-unskilled wage inequality. It is shown that, when all goods are traded, a tax on labour in the industrial sector increases skilled-unskilled wage inequality. On the other hand, a tax on labour in the intermediate good sector has the opposite effect. However, when the intermediate good is non-traded, the impact of a tax on labour in either of the two sectors is negative. Furthermore, irrespective of whether or not the intermediate good is traded, a tax on labour in the agricultural sector increases skilled-skilled wage inequality.

Item ID: 42027
Item Type: Article (Research - C1)
ISSN: 1873-6122
Keywords: skilled-unskilled wage inequality; partial tax on labour; sector specific intermediate goods; globalisation; non-traded goods
Date Deposited: 08 Dec 2015 18:37
FoR Codes: 14 ECONOMICS > 1402 Applied Economics > 140211 Labour Economics @ 100%
SEO Codes: 91 ECONOMIC FRAMEWORK > 9102 Microeconomics > 910208 Micro Labour Market Issues @ 100%
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