This paper investigates the effects of using dismissal taxes to finance unemployment benefits. We compare dismissal and employment taxes in a model with search frictions. Employment taxes give rise to externalities because firms do not take into account the effects their dismissal decisions have...

In the theoretical literature, the effects of employment protection on unemployment are ambiguous. Higher employment protection reduces job creation as well as job destruction. However, in most models, wages are bargained individually between workers and firms. Using a conventional matching...