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Negative Income Tax and Labor Market Participation: A Short Run Analysis

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Listed:
  • Samir Amine
  • Pedro Lages Dos Santos

Abstract

This article examines the effects of the Negative Income Tax, in a matching model, on labor market participation. We show that the introduction of such instrument reduces unemployment and improves the situation of the poorest. But, amazingly, it provokes a fall on labor market participation principally because the agents are then less selective. We find another surprising result: despite the rise on participation, the increasing of unemployment benefits improves the situation of the firms at the expense of workers.

Suggested Citation

  • Samir Amine & Pedro Lages Dos Santos, 2015. "Negative Income Tax and Labor Market Participation: A Short Run Analysis," CIRANO Working Papers 2015s-28, CIRANO.
    • Handle: RePEc:cir:cirwor:2015s-28
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    File URL: https://cirano.qc.ca/files/publications/2015s-28.pdf
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    References listed on IDEAS

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    1. Christopher A. Pissarides, 2000. "Equilibrium Unemployment Theory, 2nd Edition," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262161877, December.
    2. Pietro Garibaldi & Etienne Wasmer, 2003. "Equilibrium Unemployment in a Model of Imperfect Labour Market," Working Papers 248, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    3. Christopher A. Pissarides & Barbara Petrongolo, 2001. "Looking into the Black Box: A Survey of the Matching Function," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 390-431, June.
    4. Marimon, Ramon & Zilibotti, Fabrizio, 1999. "Unemployment vs. Mismatch of Talents: Reconsidering Unemployment Benefits," Economic Journal, Royal Economic Society, vol. 109(455), pages 266-291, April.
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    More about this item

    Keywords

    Matching; participation; negative income tax.;
    All these keywords.

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J41 - Labor and Demographic Economics - - Particular Labor Markets - - - Labor Contracts
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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