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Optimum income taxation and layoff taxes

  • Pierre Cahuc

    (CREST - Centre de Recherche en Économie et Statistique - INSEE - École Nationale de la Statistique et de l'Administration Économique)

  • André Zylberberg

    ()

    (CES - Centre d'économie de la Sorbonne - CNRS : UMR8174 - Université Paris I - Panthéon-Sorbonne)

This paper analyzes optimum income taxation in a model with endogenous job destruction that gives rise to unemployment. It is shown that optimal tax schemes comprise both payroll and layoff taxes when the state provides public unemployment insurance and aims at redistributing income. The optimal layoff tax is equal to the social cost of job destruction, which amounts to the sum of unemployment benefits (that the state pays to unemployed workers) and payroll taxes (that the state does not get when workers are unemployed).

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Paper provided by HAL in its series Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) with number halshs-00255794.

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Date of creation: Oct 2008
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Publication status: Published, Journal of Public Economics, 2008, 92, 10-11, 2003-2019
Handle: RePEc:hal:cesptp:halshs-00255794
Note: View the original document on HAL open archive server: http://halshs.archives-ouvertes.fr/halshs-00255794
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  1. W. Henry Chiu & Edi Karni, 1998. "Endogenous Adverse Selection and Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 106(4), pages 806-827, August.
  2. Azariadis, Costas, 1975. "Implicit Contracts and Underemployment Equilibria," Journal of Political Economy, University of Chicago Press, vol. 83(6), pages 1183-1202, December.
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  8. Sherwin Rosen, 1985. "Implicit Contracts: A Survey," NBER Working Papers 1635, National Bureau of Economic Research, Inc.
  9. Feldstein, Martin S, 1976. "Temporary Layoffs in the Theory of Unemployment," Journal of Political Economy, University of Chicago Press, vol. 84(5), pages 937-57, October.
  10. Guy Laroque, 2005. "Income Maintenance and Labor Force Participation," Econometrica, Econometric Society, vol. 73(2), pages 341-376, 03.
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  12. Hopenhayn, Hugo A & Nicolini, Juan Pablo, 1997. "Optimal Unemployment Insurance," Journal of Political Economy, University of Chicago Press, vol. 105(2), pages 412-38, April.
  13. Anderson, Patricia M. & Meyer, Bruce D., 2000. "The effects of the unemployment insurance payroll tax on wages, employment, claims and denials," Journal of Public Economics, Elsevier, vol. 78(1-2), pages 81-106, October.
  14. Burdett, Kenneth & Wright, Randall, 1989. "Optimal firm size, taxes, and unemployment," Journal of Public Economics, Elsevier, vol. 39(3), pages 275-287, August.
  15. Mortensen, Dale T & Pissarides, Christopher, 1999. "New Developments in Models of Search in the Labour Market," CEPR Discussion Papers 2053, C.E.P.R. Discussion Papers.
  16. Beaudry, Paul & Blackorby, 1997. "Taxes and employment subsidies in an optimal redistribution program," CEPREMAP Working Papers (Couverture Orange) 9709, CEPREMAP.
  17. Anderson, Patricia M & Meyer, Bruce D, 1993. "Unemployment Insurance in the United States: Layoff Incentives and Cross Subsidies," Journal of Labor Economics, University of Chicago Press, vol. 11(1), pages S70-95, January.
  18. Emmanuel Saez, 2002. "Optimal Income Transfer Programs: Intensive Versus Extensive Labor Supply Responses," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 1039-1073, August.
  19. Pierre Cahuc & Franck Malherbet, 2001. "Unemployment Compensation Finance and Labor Market Rigidity," Working Papers 2001-37, Centre de Recherche en Economie et Statistique.
  20. Baily, Martin Neil, 1974. "Wages and Employment under Uncertain Demand," Review of Economic Studies, Wiley Blackwell, vol. 41(1), pages 37-50, January.
  21. Burdett, Kenneth & Wright, Randall, 1989. "Unemployment Insurance and Short-Time Compensation: The Effects on Layoffs, Hours per Worker, and Wages," Journal of Political Economy, University of Chicago Press, vol. 97(6), pages 1479-96, December.
  22. Mirrlees, James A, 1971. "An Exploration in the Theory of Optimum Income Taxation," Review of Economic Studies, Wiley Blackwell, vol. 38(114), pages 175-208, April.
  23. Pierre Cahuc & André Zylberberg, 2004. "Labor Economics," MIT Press Books, The MIT Press, edition 1, volume 1, number 026203316x, June.
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