Optimum income taxation and layoff taxes

Pierre Cahuc (1) , André Zylberberg (2)

1 CREST - Centre de Recherche en Économie et Statistique
2 CES - Centre d'économie de la Sorbonne

This paper analyzes optimum income taxation in a model with endogenous job destruction that gives rise to unemployment. It is shown that optimal tax schemes comprise both payroll and layoff taxes when the state provides public unemployment insurance and aims at redistributing income. The optimal layoff tax is equal to the social cost of job destruction, which amounts to the sum of unemployment benefits (that the state pays to unemployed workers) and payroll taxes (that the state does not get when workers are unemployed).

Mots clés: Job destruction; Layoff taxes; Optimal taxation; Job destruction.

Domaines: Economies et finances

Pierre Cahuc, André Zylberberg. Optimum income taxation and layoff taxes. Journal of Public Economics, 2008, 92 (10-11), pp.2003-2019. ⟨10.1016/j.jpubeco.2007.12.006⟩. ⟨halshs-00255794⟩