The Magic of Layoff Taxes Requires Equilibrium Stability

Frédéric Gavrel

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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

Keywords: payroll taxes; Layoff taxes; public policy efficiency (search for similar items in EconPapers)
Date: 2018-04
New Economics Papers: this item is included in nep-gth and nep-pbe
Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01462917v2
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Published in International Tax and Public Finance, 2018, 25 (2), pp.404-411. ⟨10.1007/s10797-017-9459-y⟩

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Journal Article: The magic of layoff taxes requires equilibrium stability (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-01462917

DOI: 10.1007/s10797-017-9459-y

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