Fighting Long-Term Unemployment with Targeted Employment Subsidies: Benefit Transfer Programme (BTP) versus Targeted Negative Income Tax (TNIT)
AbstractAn important feature of the European unemployment problem is the disincentive to supply labour for low-productivity workers due to generous levels of non-labour income in conjunction with marginal effective tax rates of around 100% for low levels of income (poverty trap). Targeted employment subsidies are proposed to overcome this problem. Snower (1994, 1997) suggests a targeted employer subsidy scheme called "Benefit Transfer Programme (BTP)". Jerger/Spermann (1997) suggest a targeted employee subsidy scheme called "Targeted Negative Income Tax (TNIT)". Both proposals solve the poverty trap problem for a limited time period without additional fiscal costs. In this paper, the employment effects of BTP and TNIT are compared in an extended model of equilibrium unemployment. It turns out that TNIT may in practice be associated with higher employment effects than BTP due to the role of transaction costs and asymmetric information.
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Bibliographic InfoArticle provided by Justus-Liebig University Giessen, Department of Statistics and Economics in its journal Journal of Economics and Statistics.
Volume (Year): 218 (1999)
Issue (Month): 5+6 (May)
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poverty trap; employee subsidy; employer subsidy; model of equilibrium unemployment;
Find related papers by JEL classification:
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs
- J22 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Time Allocation and Labor Supply
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