Unemployment vs. In-work Benefits with Search Unemployment and Observable Abilities

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Abstract

This paper explores the optimal interaction between the tax system and unemployment compensation in insuring people against the risks of involuntary unemployment and low ability.To that end, we introduce search unemployment in a model of optimal non-linear income taxation.We find that the optimal search subsidy (i.e. the difference between the in-work benefit and the unemployment benefit) increases if, for efficient agents, the participation constraint (governing job search) becomes relatively more important than the incentive compatibility constraint (determining hours worked).The relation between unemployment benefits and the optimal level of in-work benefits (the number of people exerting positive work effort) is U (inversely U) shaped.
Original languageEnglish
Place of PublicationTilburg
PublisherMacroeconomics
Number of pages40
Volume2001-77
Publication statusPublished - 2001

Publication series

NameCentER Discussion Paper
Volume2001-77

Fingerprint

Unemployment
Search unemployment
Unemployment benefits
Tax system
Incentive compatibility
Job search
Participation constraints
Work effort
Subsidies
Nonlinear income taxation
Hours worked
Involuntary unemployment
Unemployment compensation
Interaction

Keywords

  • unemployment
  • taxation
  • redistribution
  • unemployment insurance

Cite this

Boone, J., & Bovenberg, A. L. (2001). Unemployment vs. In-work Benefits with Search Unemployment and Observable Abilities. (CentER Discussion Paper; Vol. 2001-77). Tilburg: Macroeconomics.
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Boone, J & Bovenberg, AL 2001 'Unemployment vs. In-work Benefits with Search Unemployment and Observable Abilities' CentER Discussion Paper, vol. 2001-77, Macroeconomics, Tilburg.

Unemployment vs. In-work Benefits with Search Unemployment and Observable Abilities. / Boone, J.; Bovenberg, A.L.

Tilburg : Macroeconomics, 2001. (CentER Discussion Paper; Vol. 2001-77).

Research output: Working paperDiscussion paperOther research output

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KW - taxation

KW - redistribution

KW - unemployment insurance

M3 - Discussion paper

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BT - Unemployment vs. In-work Benefits with Search Unemployment and Observable Abilities

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