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Training, firing taxes and welfare


  • Andrea Ricci

    () (Dipartimento di Economia, Sapienza University of Rome Italy)


This paper shows that the distortion of privately provided training caused by hold up an justify the introduction of positive firing tax in economies populated by risk neutral or perfectly insured agents. More precisely we highlight two results. First, an efficient economic policy, which makes use of a small lay-off tax and hiring subsidies, always increases employment, productivity and the welfare of unemployed workers. Second, with no hiring subsidies, the relationship between firing penalties and welfare depends on the returns to training. In this case, if returns to training are high enough, the introduction of a small firing tax causes an increase in job tenure, training investment and the welfare of unemployed.

Suggested Citation

  • Andrea Ricci, 2006. "Training, firing taxes and welfare," Working Papers - Dipartimento di Economia 5-DEISFOL, Dipartimento di Economia, Sapienza University of Rome, revised 2006.
  • Handle: RePEc:des:wpaper:11

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