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Financing unemployment benefits by goods market competition: fiscal policy and deregulation with market imperfections

  • Antonio Scial…

    ()

    (Universit… di Padova)

  • Riccardo Tilli

    ()

    (Universit… di Roma)

We consider a model in which the labor market is characterized by search frictions and there is monopolistic competition in the goods market. We introduce proportional income taxation and unemployment benefits with Government balanced budget constraint. Then, we evaluate the effects of both more competition in the goods market and higher unemployment benefits on labor market equilibrium and equilibrium tax rate. We show that more competition has a positive effect on equilibrium unemployment and the Government budget. Higher unemployment benefits can be financed either by higher tax rate or increasing goods market competition. Liberalization policies could permit: a) to avoid an increase in unemployment if we allow some rise in the tax rate; b) to decrease unemployment if they are incisive enough to keep the tax rate unchanged.

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Paper provided by Dipartimento di Scienze Economiche "Marco Fanno" in its series "Marco Fanno" Working Papers with number 0047.

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Length: 22 pages
Date of creation: Sep 2007
Date of revision:
Handle: RePEc:pad:wpaper:0047
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  1. Blanchard, Olivier J & Giavazzi, Francesco, 2001. "Macroeconomic Effects of Regulation and Deregulation in Goods and Labour Markets," CEPR Discussion Papers 2713, C.E.P.R. Discussion Papers.
  2. Nicoletti, Giuseppe & Ardagna, Silvia & Alesina, Alberto & Schiantarelli, Fabio, 2005. "Regulation and Investment," Scholarly Articles 2579825, Harvard University Department of Economics.
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  7. Monique Ebell & Christian Haefke, 2002. "Product market deregulation and labor market outcomes," Economics Working Papers 726, Department of Economics and Business, Universitat Pompeu Fabra, revised Dec 2003.
  8. Pissarides, Christopher A., 2001. "Employment protection," Labour Economics, Elsevier, vol. 8(2), pages 131-159, May.
  9. Barbara Petrongolo & Christopher A. Pissarides, 2000. "Looking Into the Black Box: A Survey of the Matching Function," CEP Discussion Papers dp0470, Centre for Economic Performance, LSE.
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  13. Adriana Kugler & Giovanni Pica, 2003. "The Effects of Employment Protection and Product Market Regulations on the Italian Labor Market," LABORatorio R. Revelli Working Papers Series 28, LABORatorio R. Revelli, Centre for Employment Studies.
  14. Nicola Brandt & Jean-Marc Burniaux & Romain Duval, 2005. "Assessing the OECD Jobs Strategy: Past Developments and Reforms," OECD Economics Department Working Papers 429, OECD Publishing.
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  16. Aghion, Philippe & Harris, Christopher & Vickers, John, 1997. "Competition and growth with step-by-step innovation: An example," European Economic Review, Elsevier, vol. 41(3-5), pages 771-782, April.
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