Welfare states and unemployment

Lars Ljungqvist, Thomas Sargent

    Research output: Contribution to journalArticle

    Abstract

    This paper studies equilibrium unemployment in a search model where the government both provides liberal unemployment insurance and taxes labor at high progressive tax rates. It is shown how progressive income taxation can counteract a high unemployment rate under generous unemployment insurance. In particular, high marginal taxes reduce workers' incentives to switch jobs in response to changing economic opportunities. This lower labor mobility reduces unemployment but at the cost of a less efficient labor allocation.

    Original languageEnglish (US)
    Pages (from-to)143-160
    Number of pages18
    JournalEconomic Theory
    Volume6
    Issue number1
    DOIs
    StatePublished - Feb 1995

    Fingerprint

    Welfare state
    Unemployment insurance
    Unemployment
    Equilibrium unemployment
    Unemployment rate
    Government
    Labor tax
    Economics
    Workers
    Tax
    Income taxation
    Labour mobility
    Incentives
    Progressive taxes
    Tax rate
    Labor

    ASJC Scopus subject areas

    • Economics and Econometrics

    Cite this

    Ljungqvist, L., & Sargent, T. (1995). Welfare states and unemployment. Economic Theory, 6(1), 143-160. https://doi.org/10.1007/BF01213944

    Welfare states and unemployment. / Ljungqvist, Lars; Sargent, Thomas.

    In: Economic Theory, Vol. 6, No. 1, 02.1995, p. 143-160.

    Research output: Contribution to journalArticle

    Ljungqvist, L & Sargent, T 1995, 'Welfare states and unemployment', Economic Theory, vol. 6, no. 1, pp. 143-160. https://doi.org/10.1007/BF01213944
    Ljungqvist, Lars ; Sargent, Thomas. / Welfare states and unemployment. In: Economic Theory. 1995 ; Vol. 6, No. 1. pp. 143-160.
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