Abstract
Abstract Unemployment insurance is analysed in the optimal taxation framework. Benefits discourage search and thus raise unemployment. A perfect capital market model is developed and solved explicitly for a constant absolute risk aversion utility function. For ‘realistic’ parameter values low replacement rates (less than 50%) are optimal. If there is no lending or borrowing the optimal rates rise to about 75%. Alternative models also admit leisure as a good and the input to search; this reduces optimal replacement when the capital market is perfect. When it is nonexistent the optimal benefits depend on the value of leisure - rising as it falls. Alternatives to constant benefits conditional on continued unemployment are considered.
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
