The Impact of Taxing Unemployment Insurance Benefits on Unemployment Duration and Post-unemployment Earnings

Chul-In Lee

International Tax and Public Finance, 2000, vol. 7, issue 4, 546 pages

Abstract: In 1979, unemployment insurance benefits became taxableincome for recipients with income above a specified threshold.Further legislation in 1982 lowered the income threshold. Thispaper uses the Continuous Wage and Benefit History (CWBH) database to evaluate the effects of the 1982 change on the compensatedduration of unemployment and post-unemployment earnings. The1982 episode is a particularly useful “natural experiment”because the “treatment group” (those newly subject to benefittaxation) is the middle income category and the two “controlgroups” (those whose benefits were already taxed and those whosebenefits still were not taxed) are the high and low income categories.If the two control groups show similar trends in unemploymentduration (or post-unemployment earnings) and the treatment groupshows a strikingly different pattern, this is compelling evidenceof a tax effect. The empirical results suggest that taxing unemploymentbenefits reduced the affected workers' mean compensated durationby more than a week, but did not have a statistically significanteffect on their post-unemployment earnings. Copyright Kluwer Academic Publishers 2000

Keywords: unemployment insurance; tax treatment of UI benefits; compensated unemployment duration; post-unemployment earnings (search for similar items in EconPapers)
Date: 2000
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DOI: 10.1023/A:1008741607468

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