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Financing unemployment benefits by goods market competition: fiscal policy and deregulation with market imperfections

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  • Antonio Scialà

    ()
    (Università di Padova)

  • Riccardo Tilli

    ()
    (Università di Roma)

Abstract

We consider a model in which the labor market is characterized by search frictions and there is monopolistic competition in the goods market. We introduce proportional income taxation and unemployment benefits with Government balanced budget constraint. Then, we evaluate the effects of both more competition in the goods market and higher unemployment benefits on labor market equilibrium and equilibrium tax rate. We show that more competition has a positive effect on equilibrium unemployment and the Government budget. Higher unemployment benefits can be financed either by higher tax rate or increasing goods market competition. Liberalization policies could permit: a) to avoid an increase in unemployment if we allow some rise in the tax rate; b) to decrease unemployment if they are incisive enough to keep the tax rate unchanged.

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Bibliographic Info

Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0047.

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Length: 22 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:pad:wpaper:0047

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Keywords: Matching Models; Monopolistic Competition; Fiscal Policy; Unemployment Insurance;

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  1. Ebell, Monique & Haefke, Christian, 2003. "Product Market Deregulation and Labor Market Outcomes," IZA Discussion Papers 957, Institute for the Study of Labor (IZA).
  2. Olivier Blanchard & Francesco Giavazzi, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labor Markets," NBER Working Papers 8120, National Bureau of Economic Research, Inc.
  3. Saint-Paul, Gilles, 1999. "The Political Economy of Employment Protection," CEPR Discussion Papers 2109, C.E.P.R. Discussion Papers.
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  7. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, vol. 90(5), pages 881-94, October.
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  9. Kugler, Adriana & Pica, Giovanni, 2003. "The effects of employment protection and product market regulations on the Italian labor market," Discussion Paper Series In Economics And Econometrics 0310, Economics Division, School of Social Sciences, University of Southampton.
  10. Tito Boeri & Giuseppe Nicoletti & Stefano Scarpetta, . "Regulation and Labour Market Performance," Working Papers 158, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  11. Aghion, Philippe & Harris, Christopher & Vickers, John, 1997. "Competition and growth with step-by-step innovation: An example," European Economic Review, Elsevier, vol. 41(3-5), pages 771-782, April.
  12. Nicola Brandt & Jean-Marc Burniaux & Romain Duval, 2005. "Assessing the OECD Jobs Strategy: Past Developments and Reforms," OECD Economics Department Working Papers 429, OECD Publishing.
  13. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
  14. Thomas Ziesemer, 2005. "Monopolistic Competition And Search Unemployment," Metroeconomica, Wiley Blackwell, vol. 56(3), pages 334-359, 07.
  15. Koeniger, Winfried & Vindigni, Andrea, 2003. "Employment Protection and Product Market Regulation," IZA Discussion Papers 880, Institute for the Study of Labor (IZA).
  16. Christopher Gust & Jaime Marquez, 2002. "International comparisons of productivity growth: the role of information technology and regulatory practices," International Finance Discussion Papers 727, Board of Governors of the Federal Reserve System (U.S.).
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