Optimal Unemployment Insurance and Redistribution

Robin Boadway and Katherine Cuff

No 274701, Queen's Economics Department Working Papers from Queen's University - Department of Economics

Abstract: We characterize optimal income taxation and unemployment insurance in a search-matching framework where both voluntary and involuntary unemployment are endogenous and Nash bargaining determines wages. Individuals differ in utility when voluntarily unemployed (non-participants in the labour market) and decide whether to participate as a job seeker and if so, how much search effort to exert. Unemployment insurance trades of insurance versus moral hazard due to search. We show that it is optimal to have a positive linear wage tax without any redistributive concerns even if search is effcient so the Hosios condition is satisfied. We also allow for different productivity types so there is a redistributive role for the income tax and show that a proportional wage tax internalizes the macro effects arising from endogenous wages. Lump-sum income taxes and transfers can then redistribute between individuals of differing skills and employment states. Our analysis embeds optimal unemployment insurance into an extensive-margin optimal redistribution framework where transfers to the involuntary and voluntary unemployed can differ, and nests several standard models in the literature.

Keywords: Demand and Price Analysis; Financial Economics (search for similar items in EconPapers)
Pages: 36
Date: 2016-12
New Economics Papers: this item is included in nep-gth, nep-ias and nep-pbe
References: Add references at CitEc
Citations:

Downloads: (external link)
https://ageconsearch.umn.edu/record/274701/files/qed_wp_1375.pdf (application/pdf)

Related works:
Journal Article: Optimal unemployment insurance and redistribution (2018)
Working Paper: Optimal Unemployment Insurance And Redistribution (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:quedwp:274701

DOI: 10.22004/ag.econ.274701

Access Statistics for this paper

More papers in Queen's Economics Department Working Papers from Queen's University - Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by AgEcon Search ().