non-market activities. Search-matching frictions on the labor markets create unemployment. Wages, labor demand and …

This paper studies optimal income taxation in an environment where matching frictions generate a trade-off for workers … between high wages and low unemployment risk. A higher marginal tax rate shifts the trade-off in favor of low unemployment … risk, whereas a higher tax burden or unemployment benefit has the opposite effect. Changes in unemployment generate fiscal …

unemployment. Four main results are derived: (i) the optimal size of the welfare state depends on the degree of risk-aversion and … the unemployment rate as a measure of labor income risk. The unemployment rate partly reflects the country's exposure to … globalization; (ii) corporate taxation and social insurance have equivalent effects on unemployment and outbound FDI; (iii) while an …