Unemployment insurance and optimal taxation in a search model of the labor market ¬リニ
نویسنده
چکیده
In many search models of the labor market, unemployment insurance (UI) is conveniently interpreted as the value of leisure or home production and is, therefore, treated as a parameter. However, in reality, UI has to be funded through taxation that might be distortionary. In this paper, I analyze the welfare implications of raising funds towards UI benefits through different taxation systems within a directed search model. Since firms “direct” workers to apply to them by posting wages, raising UI funds in a lump-sum manner always distorts the efficient allocation, as it gives firms an incentive to be excessively aggressive in their attempt to maximize the probability of filing up their vacancies. I discuss two ways through which this externality can be internalized and efficiency can be restored. JEL Classification: C78; E24; J65
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