Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25752
Authors: 
Knabe, Andreas
Schöb, Ronnie
Weimann, Joachim
Year of Publication: 
2006
Series/Report no.: 
CESifo working paper 1707
Abstract: 
In this paper, we attempt to renew the interest in marginal employment subsidies. Such subsidies are paid only for a firm's additional employment exceeding some reference level and create larger employment stimuli at lower fiscal costs than general wage subsidies for all workers. If the hiring of a new employee also entails subsidizing an incumbent worker (double marginal subsidization), the replacement of regular paid workers by outsourcing employment to newly established firms - a standard critique of marginal employment subsidies - can be avoided. This additional subsidy reduces the incentive to crowd out regular employment and results in even larger employment effects. Applying the subsidy scheme to the low-skill labor market in Germany, we show that employment can be substantially increased without imposing additional fiscal burden.
JEL: 
J38
J68
H25
Document Type: 
Working Paper

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