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Fighting unemployment without worsening povety: Basic income versus reductions of social security contributions

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  • Van der Linden, Bruno

    (UNIVERSITE CATHOLIQUE DE LOUVAIN, Institut de Recherches Economiques et Sociales (IRES) ; Belgian National Fund for Scientific Research (FNRS))

Abstract

Reductions of social security contributions (RSSC) and a basic income (BI) (or the related Negative Income Tax) are considered in a dynamic general equilibrium framework with imperfect competition on the labour market (the ‘wage-setting/price-setting’ model). The cases with homogeneous and heterogeneous workers are considered. It turns out that both policies have a long-run effect on the unemployment rate if they are appropriately designed. With two types of skills, this proposition holds if relative wages are rigid and if the supply of skills is not perfectly elastic. A welfare analysis shows that introducing appropriately framed RSSC or BI can be a Pareto improvement.

Suggested Citation

  • Van der Linden, Bruno, 1998. "Fighting unemployment without worsening povety: Basic income versus reductions of social security contributions," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1999028, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES), revised 00 Oct 1999.
  • Handle: RePEc:ctl:louvir:1999028
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    File URL: http://sites.uclouvain.be/econ/DP/IRES/9928.pdf
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    Cited by:

    1. Van der Linden, Bruno, 1999. "Active Citizen's Income, Unconditional Income and Participation under Imperfect Competition: A Normative Analysis," Discussion Papers (IRES - Institut de Recherches Economiques et Sociales) 1999023, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    2. Dreze, Jacques H, 2000. " Economic and Social Security in the Twenty-First Century, with Attention to Europe," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(3), pages 327-348, June.
    3. Etienne Lehmann, 2003. "Évaluation de la mise en place d’un système d’allocation universelle en présence de qualifications hétérogènes : le rôle institutionnel du salaire minimum," Économie et Prévision, Programme National Persée, vol. 157(1), pages 31-50.
    4. Thomas Moutos & William Scarth, 2003. "Some Macroeconomic Consequences of Basic Income and Employment Subsidies," CESifo Working Paper Series 916, CESifo Group Munich.

    More about this item

    Keywords

    basic income; taxation; payroll taxes; social insurance; wage bargaining; equilibrium unemployment;

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J32 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Nonwage Labor Costs and Benefits; Retirement Plans; Private Pensions
    • J38 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Public Policy
    • J58 - Labor and Demographic Economics - - Labor-Management Relations, Trade Unions, and Collective Bargaining - - - Public Policy

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