Optimum Income Taxation and Layoff Taxes

Pierre Cahuc and Andre Zylberberg ()

No 5170, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper analyses 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 discounted value of 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). Our quantitative analysis suggests that the introduction of layoff taxes, that are usually absent from actual tax schemes, could lead to significant increases in employment and GDP.

Keywords: Layoff taxes; Optimal taxation; Job destruction (search for similar items in EconPapers)
JEL-codes: H21 H32 J38 J65 (search for similar items in EconPapers)
Date: 2005-08
New Economics Papers: this item is included in nep-dge, nep-lab, nep-pbe and nep-pub
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Journal Article: Optimum income taxation and layoff taxes (2008)
Working Paper: Optimum income taxation and layoff taxes (2008)
Working Paper: Optimum income taxation and layoff taxes (2008)
Working Paper: Optimum Income Taxation and Layoff Taxes (2005)
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