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Unemployment BeneÞts and Optimal Non-Linear Income Taxation ∗ Per Engström †

By Jel-classiþcation H

Abstract

This paper explores the rationale for unemployment beneÞts 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 Þnd that there is a case for over-insuring the lowskilled, hence the unemployment beneÞts 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

Topics: Optimal non-linear income taxation, unemployment beneÞts. ∗I thank Bertil Holmlund, Ann-SoÞe Kolm, Sören Blomquist and Claus Thustrup
Year: 2003
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