Unemployment versus In-work Benefits with Search Unemployment and Observable Abilities

Lans Bovenberg and Jan Boone

No 3043, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This Paper explores the optimal interaction between the tax system and unemployment compensation in insuring people against the risks of involuntary unemployment and low ability. To that end, we introduce search unemployment in a model of optimal non-linear income taxation. We find that the optimal search subsidy (i.e. the difference between the in-work benefit and the unemployment benefit) increases if, for efficient agents, the participation constraint (governing job search) becomes relatively more important than the incentive compatibility constraint (determining hours worked). The relation between unemployment benefits and the optimal level of in-work benefits (the number of people exerting positive work effort) is U (inversely U) shaped.

Keywords: Search; In-work tax benefits; Unemployment compensation (search for similar items in EconPapers)
JEL-codes: H21 J64 J65 (search for similar items in EconPapers)
Date: 2001-11
References: Add references at CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://cepr.org/publications/DP3043 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
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:cpr:ceprdp:3043

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP3043

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().