Optimum Income Taxation and Layoff Taxes

Pierre Cahuc and Andre Zylberberg ()

No 1678, IZA Discussion Papers from Institute of Labor Economics (IZA)

Abstract: This paper analyzes 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: optimal taxation; job destruction; layoff taxes (search for similar items in EconPapers)
JEL-codes: H21 H32 J38 J65 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2005-07
New Economics Papers: this item is included in nep-lab, nep-pbe and nep-pub
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published - published in: Journal of Public Economics, 2008, 92 (10-11), 2003-2019

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Related works:
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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