Financing Unemployment Benefits: Dismissal versus Employment Taxes
AbstractThis paper investigates the effects of using dismissal taxes to finance unemployment benefits. We compare dismissal and employment taxes in a model with search frictions. Employment taxes give rise to externalities because firms do not take into account the effects their dismissal decisions have on others. By introducing dismissal taxes to finance unemployment insurance, these externalities can partly be internalized. Taking into account the budget of the unemployment insurance, employment taxes can be reduced by more than necessary to offset the adverse effect of dismissal taxes on the firm value. The introduction of dismissal taxes leads to higher job creation and lower unemployment, in contrast to standard results concerning employment protection.
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Bibliographic InfoPaper provided by Research Group Heterogeneous Labor, University of Konstanz/ZEW Mannheim in its series Working Papers of the Research Group Heterogenous Labor with number 05-03.
Length: 19 pages
Date of creation: 10 Feb 2005
Date of revision:
employment protection ; search and matching models ; unemployment ; unemployment insurance;
Other versions of this item:
- Florian Baumann & Nikolai Stähler, 2006. "Financing Unemployment Benefits: Dismissal versus Employment Taxes," LABOUR, CEIS, vol. 20(3), pages 433-451, 09.
- J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
- J64 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment: Models, Duration, Incidence, and Job Search
- J65 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Unemployment Insurance; Severance Pay; Plant Closings
- J68 - Labor and Demographic Economics - - Mobility, Unemployment, and Vacancies - - - Public Policy
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