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The Magic of Layoff Taxes Requires Equilibrium Stability

Author

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  • Frédéric Gavrel

    (CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique)

Abstract

In the same vein as Blanchard and Tirole (2008) First Pass, this note shows that, under the condition for equilibrium stability, the partial implementation of layoff taxes invariably increases firms' profits as well as workers' utilities by lowering payroll taxes. It also proves that requiring stability does not raise any equilibrium existence issue per se: since the budget constraint of unemployment compensation induces multiple equilibria, the condition for stability simply permits the selection of one of these equilibria. These insights could favor the introduction of firing taxes, which in practice would probably be a gradual process

Suggested Citation

  • Frédéric Gavrel, 2018. "The Magic of Layoff Taxes Requires Equilibrium Stability," Post-Print halshs-01462917, HAL.
    • Handle: RePEc:hal:journl:halshs-01462917
    DOI: 10.1007/s10797-017-9459-y
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01462917v2
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    References listed on IDEAS

    as
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    Cited by:

    1. Frédéric Gavrel, 2018. "Mismatch and Wage Posting," Working Papers halshs-01884213, HAL.
    2. Frédéric Gavrel, 2019. "Directed search, mismatch and efficiency," Working Papers halshs-02083453, HAL.
    3. Frédéric Gavrel, 2018. "The magic of layoff taxes requires equilibrium stability," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(2), pages 404-411, April.

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    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • J0 - Labor and Demographic Economics - - General

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