Redistributive Unemployment Benefit and Taxation

Esfahanian Homa () and Ali Moghaddasi Kelishomi
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Esfahanian Homa: Department of Economics, University of Tehran, Tehran, Iran

The B.E. Journal of Theoretical Economics, 2023, vol. 23, issue 1, 327-343

Abstract: This paper suggests a simple rule which identifies the coordination between optimal unemployment benefits paid and the tax system in the case of risk neutral workers but with moral hazard and hidden information on the worker’s type. Our model posits that, given a universal, linear income tax scheme, the optimal unemployment benefits paid does not depend on workers’ types. Standard government policy pays a positive replacement rate to unemployed workers. Optimal redistribution, taking moral hazard and adverse selection into account, instead suggests that the benefit paid should be the same for all and only depends on the underlying tax structure.

Keywords: optimal unemployment benefit; optimal taxation; asymmetric information (search for similar items in EconPapers)
JEL-codes: D82 H21 J64 J65 (search for similar items in EconPapers)
Date: 2023
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DOI: 10.1515/bejte-2021-0049

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