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The Unemployment Benefit System: a Redistributive or an Insurance Institution?

Fernando Sánchez-Losada and Daniel Cardona

No 129, Working Papers in Economics from Universitat de Barcelona. Espai de Recerca en Economia

Abstract: In this paper we analyze how the composition of labor taxation affects unemployment in a unionized economy with capital accumulation and an unemployment benefit system. We show that if the unemployment benefit system is gross Bismarckian then the unemployment rate is reduced if wage taxes are decreased (and thus payroll taxes are increased). However, if the unemployment benefit system is net Bismarckian then the unemployment rate does not depend on how the system is financed. Besides, in a Beveridgean system the labor tax composition does not affect the unemployment rate if and only if the unemployed do not pay taxes and the employed pay a constant marginal tax rate. We also analyze when an unemployment benefit budget-balanced rule makes the economy to have a hysteresis process.

JEL-codes: E24 E62 H53 J50 J65 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2005
New Economics Papers: this item is included in nep-ias, nep-mac and nep-pbe
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