Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/33417
Authors: 
Cahuc, Pierre
Zylberberg, André
Year of Publication: 
2005
Series/Report no.: 
IZA Discussion Papers 1678
Abstract: 
This paper analyzes optimum income taxation in a model with endogenous job destruction that gives rise to unemployment. It is shown that optimal tax schemes comprise both payroll and layoff taxes when the state provides public unemployment insurance and aims at redistributing income. The optimal layoff tax is equal to the social cost of job destruction, which amounts to the discounted value of the sum of unemployment benefits (that the state pays to unemployed workers) and payroll taxes (that the state does not get when workers are unemployed). Our quantitative analysis suggests that the introduction of layoff taxes, that are usually absent from actual tax schemes, could lead to significant increases in employment and GDP.
Subjects: 
layoff taxes
optimal taxation
job destruction
JEL: 
H21
H32
J38
J65
Document Type: 
Working Paper

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