Unemployment Vs . In-work Benefits with Search Unemployment and Observable Abilities

  title={Unemployment Vs . In-work Benefits with Search Unemployment and Observable Abilities},
  author={Jan Boone and Lans Bovenberg},
This paper explores the optimal interaction between the tax system and unemployment compensation in insuring people against the risks of involuntary unemployment and low ability. To that end, we introduce search unemployment in a model of optimal non-linear income taxation. We ...nd that the optimal search subsidy (i.e. the di¤erence between the in-work bene...t and the unemployment bene...t) increases if, for e¢cient agents, the participation constraint (governing job search) becomes… CONTINUE READING

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