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Unemployment Benefits and Optimal Non-Linear Income Taxation

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  • Engström, Per

    ()
    (Department of Economics)

Abstract

This paper explores the rationale for unemployment benefits as a complement to optimal non-linear income taxation. High-skilled workers and low-skilled workers face different exogenous risks of being unemployed. As long as the low-skilled workers face a higher unemployment risk, we find that there is a case for over-insuring the low-skilled, hence the unemployment benefits of the low-skilled should be higher than the pure insurance purpose would prescribe. This effect is likely to prevail in a model with a more realistic treatment of the labor market.

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Bibliographic Info

Paper provided by Uppsala University, Department of Economics in its series Working Paper Series with number 2003:3.

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Length: 16 pages
Date of creation: 15 Jan 2003
Date of revision:
Handle: RePEc:hhs:uunewp:2003_003

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Postal: Department of Economics, Uppsala University, P. O. Box 513, SE-751 20 Uppsala, Sweden
Phone: + 46 18 471 25 00
Fax: + 46 18 471 14 78
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Web page: http://www.nek.uu.se/
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Keywords: Optimal non-linear income taxation; unemployment benefits;

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References

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  1. Engström, Per, 2002. "Optimal Non-Linear Income Taxation in Search Equilibrium," Working Paper Series 2002:18, Uppsala University, Department of Economics.
  2. Stiglitz, Joseph E., 1982. "Self-selection and Pareto efficient taxation," Journal of Public Economics, Elsevier, vol. 17(2), pages 213-240, March.
  3. BOADWAY, R. & MARCHAND, M. & PESTIEAU, P. & del MAR RACIONERO, M., 2001. "Optimal redistribution with heterogeneous preferences for leisure," CORE Discussion Papers 2001025, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Joseph E. Stiglitz, 1987. "Pareto Efficient and Optimal Taxation and the New New Welfare Economics," NBER Working Papers 2189, National Bureau of Economic Research, Inc.
  5. Aronsson, Thomas & Sjögren, Tomas, 2001. "Income Taxation, Commodity Taxation and Provision of Public Goods under Labor Market Distortions," UmeÃ¥ Economic Studies 568, Umeå University, Department of Economics.
  6. Boadway, Robin & Keen, Michael, 2000. "Redistribution," Handbook of Income Distribution, in: A.B. Atkinson & F. Bourguignon (ed.), Handbook of Income Distribution, edition 1, volume 1, chapter 12, pages 677-789 Elsevier.
  7. Fredriksson, Peter & Holmlund, Bertil, 1998. "Optimal Unemployment Insurance in Search Equilibrium," Working Paper Series 1998:2, Uppsala University, Department of Economics.
  8. Shavell, Steven & Weiss, Laurence, 1979. "The Optimal Payment of Unemployment Insurance Benefits over Time," Journal of Political Economy, University of Chicago Press, vol. 87(6), pages 1347-62, December.
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Citations

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Cited by:
  1. Aronsson, Thomas & Blomquist, Sören, 2004. "Redistribution and Provision of Public Goods in an Economic Federation," UmeÃ¥ Economic Studies 636, Umeå University, Department of Economics.
  2. Engström, Per, 2007. "Wage Formation and Redistribution," Working Paper Series 2007:12, Uppsala University, Department of Economics.

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