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Firing Costs, Payroll Taxes and Unemployement

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  • Frédéric Gavrel
  • Isabelle Lebon

Abstract

Using a simple extension of Mortensen and Pissarides (1994), we show that substituting layoff taxes for payroll taxes reduces unemployment. Indeed, layoff taxes lead the firms to internalize the effect of dismissals on unemployment costs. So countries which have costly employment protection procedures (as happens in continental Europe) have much to gain in replacing them by firing taxes.

Suggested Citation

  • Frédéric Gavrel & Isabelle Lebon, 2008. "Firing Costs, Payroll Taxes and Unemployement," Annals of Economics and Statistics, GENES, issue 89, pages 121-129.
    • Handle: RePEc:adr:anecst:y:2008:i:89:p:121-129
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    File URL: http://www.jstor.org/stable/27715164
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    Cited by:

    1. Frédéric Gavrel, 2018. "The magic of layoff taxes requires equilibrium stability," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(2), pages 404-411, April.
    2. Frédéric Gavrel, 2017. "The Magic of Layoff Taxes Requires Equilibrium Stability," Working Papers halshs-01462917, HAL.
    3. Gavrel, Frédéric & Lebon, Isabelle & Rebière, Thérèse, 2010. "Layoff taxes and minimum wage: Two complementary public policies," Economics Letters, Elsevier, vol. 107(1), pages 30-32, April.

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