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The Unemployment Benefit System: a Redistributive or an Insurance Institution?

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  • Fernando Sanchez Losada
  • Daniel Cardona

    (Universitat de Barcelona)

Abstract

In this paper we analyze how the composition of labor taxation affects unemployment in a unionized economy with capital accumulation and an unemployment benefit system. We show that if the unemployment benefit system is gross Bismarckian then the unemployment rate is reduced if wage taxes are decreased (and thus payroll taxes are increased). However, if the unemployment benefit system is net Bismarckian then the unemployment rate does not depend on how the system is financed. Besides, in a Beveridgean system the labor tax composition does not affect the unemployment rate if and only if the unemployed do not pay taxes and the employed pay a constant marginal tax rate. We also analyze when an unemployment benefit budget-balanced rule makes the economy to have a hysteresis process.

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Bibliographic Info

Paper provided by Universitat de Barcelona. Espai de Recerca en Economia in its series Working Papers in Economics with number 129.

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Length: 21 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:bar:bedcje:2005129

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Postal: Espai de Recerca en Economia, Facultat de Ciències Econòmiques. Tinent Coronel Valenzuela, Num 1-11 08034 Barcelona. Spain.
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