Redistributive unemployment benefit and taxation
This paper suggests a simple rule which identifies the coordination between optimal unemployment benefits paid and the tax system in the case of risk neutral workers but with moral hazard and hidden information on the worker’s type. Our model posits that, given a universal, linear income tax scheme, the optimal unemployment benefits paid does not depend on workers’ types. Standard government policy pays a positive replacement rate to unemployed workers. Optimal redistribution, taking moral hazard and adverse selection into account, instead suggests that the benefit paid should be the same for all and only depends on the underlying tax structure.
- Business and Economics
Published inThe B.E. Journal of Theoretical Economics
- VoR (Version of Record)
Rights holder© Walter de Gruyter GmbH, Berlin/Boston
Publisher statementThis paper was published in the journal The B.E. Journal of Theoretical Economics and is available at https://doi.org/10.1515/bejte-2021-0049. The final publication is available at www.degruyter.com