On Substituting Consumption Taxes for Unemployment Insurance Contributions to Reduce Unemployment
AbstractThe German conservative party (consisting of two sister parties) planned in case of victory in the national election on 18 September 2005 to reduce the unemployment insurance contributions by 2 percent and to finance this with an increase in the consumption tax by 2 percent. The present paper shows in a Layard-Nickell-Jackman type wage bargaining model that this tax reform does not reduce unemployment; neither in the short to medium run, nor in the long run. When there is short-to-medium-run real wage resistance, then in the short to medium run unemployment depends on the overall tax burden, but not on the composition of the tax burden. In the long run the wage setting curve is vertical and hence in the long run unemployment is even invariant of the overall tax burden.
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Bibliographic InfoPaper provided by Department of Economics, Loughborough University in its series Discussion Paper Series with number 2005_11.
Date of creation: Sep 2005
Date of revision: Sep 2005
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More information through EDIRC
Consumption taxes; unemployment insurance contributions; payroll taxes. wage bargaining; unemployment.;
Find related papers by JEL classification:
- H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General
- J51 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Trade Unions: Objectives, Structure, and Effects
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-02-19 (All new papers)
- NEP-IAS-2006-02-19 (Insurance Economics)
- NEP-LAB-2006-02-19 (Labour Economics)
- NEP-PBE-2006-02-19 (Public Economics)
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