Firing Costs, Payroll Taxes and Unemployement

Frédéric Gavrel and Isabelle Lebon

Annals of Economics and Statistics, 2008, issue 89, 121-129

Abstract: Using a simple extension of Mortensen and Pissarides (1994), we show that substituting layoff taxes for payroll taxes reduces unemployment. Indeed, layoff taxes lead the firms to internalize the effect of dismissals on unemployment costs. So countries which have costly employment protection procedures (as happens in continental Europe) have much to gain in replacing them by firing taxes.

Date: 2008
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Persistent link: https://EconPapers.repec.org/RePEc:adr:anecst:y:2008:i:89:p:121-129

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