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Budget Cuts, Social Assistance and Voluntary Unemployment

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  • Frank Stähler

Abstract

The theory of optimal taxation has shown that bunching can be optimal under certain circumstances so that low–skilled agents are not offered any work incentives. Optimal bunching balances the marginal costs of voluntary unemployment and the marginal reduction in information rents for high–skilled workers. This paper demonstrates how the optimal scheme will change if the budget is cut. It shows that a tighter budget constraint will lead to more voluntary unemployment and less work incentives.

Suggested Citation

  • Frank Stähler, 2002. "Budget Cuts, Social Assistance and Voluntary Unemployment," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(4), pages 573-579, October.
    • Handle: RePEc:bla:jpbect:v:4:y:2002:i:4:p:573-579
    DOI: 10.1111/1097-3923.00110
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    Cited by:

    1. Massimo Morelli & Huanxing Yang & Lixin Ye, 2012. "Competitive Nonlinear Taxation and Constitutional Choice," American Economic Journal: Microeconomics, American Economic Association, vol. 4(1), pages 142-175, February.

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