Katherine Cuff - Optimal Unemployment Insurance and Redistribution

Seminar Series banner

Melbourne Institute Seminar Room
Room 6.05, FBE Building
111 Barry St, Carlton

Map

More Information

Barbara Broadway

bhanel@unimelb.edu.au

Melbourne Institute Seminar

Title: Optimal Unemployment Insurance and Redistribution

Abstract: We characterize optimal income taxation and unemployment insurance in a search-matching framework where both voluntary and involuntary unemployment are endogenous and Nash bargaining determines wages. Individuals differ in utility when voluntarily unemployed (non-participants in the labour market) and decide whether to participate as a job seeker and if so, how much search effort to exert. Unemployment insurance trades off insurance versus moral hazard due to search. We show that it is optimal to have a positive linear wage tax without any redistributive concerns even if search is efficient so the Hosios condition is satisfied. We also allow for different productivity types so there is a redistributive role for the income tax and show that a proportional wage tax internalizes the macro effects arising from endogenous wages. Lump-sum income taxes and transfers can then redistribute between individuals of differing skills and employment states. Our analysis embeds optimal unemployment insurance into an extensive-margin optimal redistribution framework where transfers to the involuntary and voluntary unemployed can differ, and nests several standard models in the literature

Presenter: Professor Katherine Cuff, McMaster University

The program coordinator of these seminars is Barbara Broadway. If you would like to subscribe to the Melbourne Institute Seminar Series email list, please contact Barbara.