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An Equilibrium Analysis of Optimal Unemployment Insurance and Taxation

Author

Listed:
  • David Easley
  • Nicholas M. Kiefer
  • Uri Possen

Abstract

A two-person, two-period general equilibrium model with uncertainty about second-period labor productivity is developed. The model is used to consider potential welfare (Pareto) gains from both a stylized unemployment insurance system and from a negative income tax system. Welfare gains are possible if individuals are sufficiently homogeneous. When both programs are operated simultaneously, complete insurance is always feasible but is optimal only if the labor supply curve is negatively sloped.

Suggested Citation

  • David Easley & Nicholas M. Kiefer & Uri Possen, 1985. "An Equilibrium Analysis of Optimal Unemployment Insurance and Taxation," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 100(Supplemen), pages 989-1010.
    • Handle: RePEc:oup:qjecon:v:100:y:1985:i:supplement:p:989-1010.
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    File URL: http://hdl.handle.net/10.1093/qje/100.Supplement.989
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    Cited by:

    1. Vargas Juliana Mesén & Linden Bruno Van der, 2019. "Why Cash Transfer Programs Can Both Stimulate and Slow Down Job Finding," IZA Journal of Labor Economics, Sciendo & Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 8(1), pages 1-27, June.
    2. Hansen, Gary D & Imrohoroglu, Ayse, 1992. "The Role of Unemployment Insurance in an Economy with Liquidity Constraints and Moral Hazard," Journal of Political Economy, University of Chicago Press, vol. 100(1), pages 118-142, February.
    3. Olivier Davanne & Thierry Pujol, 1996. "Assurance et échanges de risque sur le marché du travail," Économie et Statistique, Programme National Persée, vol. 291(1), pages 151-169.
    4. Juliana MESÉN VARGAS & Bruno VAN DER LINDEN, 2017. "Is there always a trade-off between insurance and incentives? The case of unemployment with subsistence constraints," LIDAM Discussion Papers IRES 2017014, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    5. Christian Arnsperger & David Croix, 1996. "Envy-minimizing unemployment benefits," Review of Economic Design, Springer;Society for Economic Design, vol. 2(1), pages 119-146, December.
    6. Engen, Eric M. & Gruber, Jonathan, 2001. "Unemployment insurance and precautionary saving," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 545-579, June.
    7. Cerda, Rodrigo & Vergara, Rodrigo, 2007. "Unemployment insurance in Chile: Does it stabilize the business cycle?," Journal of Policy Modeling, Elsevier, vol. 29(3), pages 473-488.
    8. Ortigueira, Salvador, 2001. "Unemployment Benefits and the Persistence of European Unemployment," Working Papers 01-16, Cornell University, Center for Analytic Economics.
    9. Schluter, Christian, 1997. "On the Performance of Social Benefit Systems," Economic Journal, Royal Economic Society, vol. 107(441), pages 489-502, March.
    10. Eric M. Engen & Jonathan Gruber, 1995. "Unemployment Insurance and Precautionary Saving," NBER Working Papers 5252, National Bureau of Economic Research, Inc.
    11. Celentani, Marco & Conde-Ruiz, J. Ignacio, 1996. "The political economy of international private insurance and fiscal policy," UC3M Working papers. Economics 6164, Universidad Carlos III de Madrid. Departamento de Economía.

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