Antoine Ferey, Ludwig Maximilian University of Munich. "Redistribution and unemployment insurance"
Department seminar. Antoine Ferey is an Assistant Professor at the Ludwig Maximilian University of Munich. He will present the paper: "Redistribution and unemployment insurance".
This paper analyzes the interactions between redistribution and unemployment insurance policies and their implications for the optimal design of tax-benefit systems. In a setting where individuals with different earnings abilities are exposed to unemployment on the labor market, I characterize the optimal income tax schedule and the optimal unemployment benefit schedule in terms of sufficient statistics. Optimal income taxes depend on the unemployment rate and on job search elasticities, because income taxes affect net earnings and thus the incentives to search for jobs. Optimal replacement rates steadily decrease with earnings from 1 at the bottom to 0 at the top, because the cost of providing unemployment insurance increases with the income taxes individuals would pay if they were employed. This implies a tight link between redistribution and unemployment insurance: the steeper the profile of income taxes is, the flatter the profile of unemployment benefits should be, and vice versa. Empirical applications show that these interactions between redistribution and unemployment insurance hold important quantitative implications.
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