Financing Unemployment Benefits: Dismissal versus Employment Taxes
AbstractThis paper investigates the effects of using dismissal taxes to finance unemployment benefits. We compare dismissal and employment taxes in a model with search frictions. Employment taxes give rise to externalities because firms do not take into account the effects their dismissal decisions have on others. These externalities can be tackled by using dismissal taxes to finance unemployment insurance. Taking into account the budget for unemployment insurance, employment taxes can be reduced by more than is necessary to offset the adverse effect of dismissal taxes on the value of the firm. The introduction of dismissal taxes leads to higher job creation and lower unemployment. Copyright 2006 The Authors; Journal compilation 2006 CEIS, Fondazione Giacomo Brodolini and Blackwell Publishing Ltd..
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Bibliographic InfoArticle provided by CEIS in its journal LABOUR.
Volume (Year): 20 (2006)
Issue (Month): 3 (09)
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Other versions of this item:
- Florian Baumann & Nikolai Stähler, 2005. "Financing Unemployment Benefits: Dismissal versus Employment Taxes," Working Papers of the Research Group Heterogenous Labor 05-03, Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim.
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
- J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy
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