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Unemployment Benefits and Optimal Non-Linear Income Taxation

Per Engström ()

No 2003:3, Working Paper Series from Uppsala University, Department of Economics

Abstract: This paper explores the rationale for unemployment benefits as a complement to optimal non-linear income taxation. High-skilled workers and low-skilled workers face different exogenous risks of being unemployed. As long as the low-skilled workers face a higher unemployment risk, we find that there is a case for over-insuring the low-skilled, hence the unemployment benefits of the low-skilled should be higher than the pure insurance purpose would prescribe. This effect is likely to prevail in a model with a more realistic treatment of the labor market.

Keywords: Optimal non-linear income taxation; unemployment benefits (search for similar items in EconPapers)
JEL-codes: H21 J22 J41 J64 (search for similar items in EconPapers)
Pages: 16 pages
Date: 2003-01-15
New Economics Papers: this item is included in nep-lab and nep-pub
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