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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. Diamond, Peter A, 1982. "Aggregate Demand Management in Search Equilibrium," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 90(5), pages 881-94, October.
  2. Blanchard, Olivier J & Giavazzi, Francesco, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labour Markets," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2713, C.E.P.R. Discussion Papers.
  3. Nicoletti, Giuseppe & Ardagna, Silvia & Alesina, Alberto & Schiantarelli, Fabio, 2005. "Regulation and Investment," Scholarly Articles 2579825, Harvard University Department of Economics.
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  9. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS), University of Warwick, Department of Economics 64, University of Warwick, Department of Economics.
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  12. Gilles Saint-Paul, 2002. "The Political Economy of Employment Protection," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 110(3), pages 672-701, June.
  13. Koeniger, Winfried & Vindigni, Andrea, 2003. "Employment Protection and Product Market Regulation," IZA Discussion Papers 880, Institute for the Study of Labor (IZA).
  14. Aghion, Philippe & Harris, Christopher & Vickers, John, 1997. "Competition and growth with step-by-step innovation: An example," European Economic Review, Elsevier, Elsevier, vol. 41(3-5), pages 771-782, April.
  15. Christopher Gust & Jaime Marquez, 2002. "International comparisons of productivity growth: the role of information technology and regulatory practices," International Finance Discussion Papers, Board of Governors of the Federal Reserve System (U.S.) 727, Board of Governors of the Federal Reserve System (U.S.).
  16. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, Elsevier, vol. 8(2), pages 131-159, May.
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