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Unemployment Benefits and Redistributive Taxes in the Presence of Labor Quality Externalities

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Author Info

  • Huizinga, H.P.

    (Tilburg University, Center for Economic Research)

Abstract

In this paper, a worker s productivity is assumed to depend on his own quality and on the average quality of other employed workers.In this setting, unemployment benefits that induce low quality workers to leave the labor force have important efficiency as well as equity implications.In addition to unemployment benefits, the authorities can use a proportional income tax and lump sum transfers.The desirability of tax and transfer policy is considered from the perspectives of a utilitarian social planner, and of an electorate consisting of employed and unemployed workers.Employed workers may be in favor of unemployment benefits, even though they do not benefit directly.If unemployment benefits are financed by lump sum taxes, then relatively high unem-ployment benefits may be favored by a coalition of the unemployed and of high quality employed workers.

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Bibliographic Info

Paper provided by Tilburg University, Center for Economic Research in its series Discussion Paper with number 1996-15.

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Date of creation: 1996
Date of revision:
Handle: RePEc:dgr:kubcen:199615

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Web page: http://center.uvt.nl

Related research

Keywords: unemployment; quality; income tax; income distribution; labour models;

References

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  1. Richard Arnott & John Rowse, 1982. "Peer Group Effects and Educational Attainment," Working Papers 497, Queen's University, Department of Economics.
  2. Kremer, Michael, 1993. "The O-Ring Theory of Economic Development," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 551-75, August.
  3. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  4. Zeckhauser, Richard J, 1971. "Optimal Mechanisms for Income Transfer," American Economic Review, American Economic Association, vol. 61(3), pages 324-34, June.
  5. Wright, Randall, 1986. "The redistributive roles of unemployment insurance and the dynamics of voting," Journal of Public Economics, Elsevier, vol. 31(3), pages 377-399, December.
  6. Boadway, Robin W. & Oswald, Andrew J., 1983. "Unemployment insurance and redistributive taxation," Journal of Public Economics, Elsevier, vol. 20(2), pages 193-210, March.
  7. Cooter, Robert & Helpman, Elhanan, 1974. "Optimal Income Taxation for Transfer Payments under Different Social Welfare Criteria," The Quarterly Journal of Economics, MIT Press, vol. 88(4), pages 656-70, November.
  8. Kristov, Lorenzo & Lindert, Peter & McClelland, Robert, 1992. "Pressure groups and redistribution," Journal of Public Economics, Elsevier, vol. 48(2), pages 135-163, July.
  9. Henderson, Vernon & Mieszkowski, Peter & Sauvageau, Yvon, 1978. "Peer group effects and educational production functions," Journal of Public Economics, Elsevier, vol. 10(1), pages 97-106, August.
  10. Baily, Martin Neil, 1978. "Some aspects of optimal unemployment insurance," Journal of Public Economics, Elsevier, vol. 10(3), pages 379-402, December.
  11. Meltzer, Allan H & Richard, Scott F, 1981. "A Rational Theory of the Size of Government," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 914-27, October.
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