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Welfare States and Unemployment

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Author Info

  • Ljungqvist, Lars
  • Sargent, Thomas J

Abstract

This paper studies equilibrium unemployment in a search model where the government both provides liberal unemployment insurance and taxes labor at high progressive tax rates. It is shown how progressive income taxation can counteract a high unemployment rate under generous unemployment insurance. In particular, high marginal taxes reduce workers' incentives to switch jobs in response to changing economic opportunities. This lower labor mobility reduces unemployment but at the cost of a less efficient labor allocation.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 6 (1995)
Issue (Month): 1 (June)
Pages: 143-60

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Handle: RePEc:spr:joecth:v:6:y:1995:i:1:p:143-60

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Web page: http://link.springer.de/link/service/journals/00199/index.htm

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Cited by:
  1. McDonald, Bruce D. & Miller, D. Ryan, 2010. "Welfare programs and the state economy," Journal of Policy Modeling, Elsevier, vol. 32(6), pages 719-732, November.
  2. Alan B. Krueger & Andreas I. Mueller, 2012. "The Lot Of The Unemployed: A Time Use Perspective," Journal of the European Economic Association, European Economic Association, vol. 10(4), pages 765-794, 08.
  3. Manning, Alan, 2001. "Labour supply, search and taxes," Journal of Public Economics, Elsevier, vol. 80(3), pages 409-434, June.
  4. Ding, Hong, 2012. "Unemployment and Welfare State: What do the Data Tell Us?," MPRA Paper 41921, University Library of Munich, Germany.
  5. Ljungqvist, Lars & Sargent, Thomas J., 1997. "The European Unemployment Dilemma," Working Paper Series in Economics and Finance 178, Stockholm School of Economics.
  6. Alan B. Krueger & Andreas Mueller, 2008. "Job Search and Unemployment Insurance: New Evidence from Time Use Data," Working Papers 1070, Princeton University, Department of Economics, Industrial Relations Section..
  7. Young, Eric R., 2004. "Unemployment insurance and capital accumulation," Journal of Monetary Economics, Elsevier, vol. 51(8), pages 1683-1710, November.
  8. Ljungqvist, Lars & Sargent, Thomas J., 1995. "The Swedish unemployment experience," European Economic Review, Elsevier, vol. 39(5), pages 1043-1070, May.
  9. Lindbeck, Assar, 1997. "Incentives in the Welfare State," Seminar Papers 604, Stockholm University, Institute for International Economic Studies.
  10. Alexis, PARMENTIER, 2006. "The effects of the marginal tax rate in a matching model with endogenous labor supply," Discussion Papers (ECON - Département des Sciences Economiques) 2006011, Université catholique de Louvain, Département des Sciences Economiques.
  11. Ljungqvist, Lars & Sargent, Thomas J, 2002. "The European Employment Experience," CEPR Discussion Papers 3543, C.E.P.R. Discussion Papers.
  12. Sorensen, Peter Birch, 1999. "Optimal tax progressivity in imperfect labour markets," Labour Economics, Elsevier, vol. 6(3), pages 435-452, September.
  13. David Domeij, 2005. "Optimal Capital Taxation and Labor Market Search," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(3), pages 623-650, July.

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