In this paper, we attempt to renew the interest in marginal employment subsidies. Such subsidies are paid only for a firm's additional employment exceeding some reference level and create larger employment stimuli at lower fiscal costs than general wage subsidies for all workers. If the hiring of a new employee also entails subsidizing an incumbent worker (double marginal subsidization), the replacement of regular paid workers by outsourcing employment to newly established firms - a standard critique of marginal employment subsidies - can be avoided. This additional subsidy reduces the incentive to crowd out regular employment and results in even larger employment effects. Applying the subsidy scheme to the low-skill labor market in Germany, we show that employment can be substantially increased without imposing additional fiscal burden. Copyright 2006 Blackwell Publishing Ltd..
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Article provided by Blackwell Publishing in its journal Kyklos.
Volume (Year): 59 (2006) Issue (Month): 4 (November) Pages: 557-577 Download reference. The following formats are available: HTML
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