Abstract
Developing a labour market model of Saint-Paul, this paper studies the influence of fiscal policy on the labour market and the issue of political support of fiscal policies, and explains the existence of labour hoarding in Russian firms. Two models are developed: the model of political support of flexibility / rigidity and the model of political support of fiscal policies. In the first model we find that when the rent of employees in the 'primary sector,' with good high paid jobs, is high, and the rent of employees in the 'secondary sector' with bad low paid jobs, is very low, all the employed population supports institutions of employment protection. A decrease in the rents of the employees in the secondary and primary sector diminishes the support for employment protection. The second model shows the conditions of political support of income redistribution in case of two- and three-tier economies.
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