This paper investigates the effects of using dismissal taxes to finance unemployment benefits. We compare dismissal and … account the effects their dismissal decisions have on others. These externalities can be tackled by using dismissal taxes to … more than is necessary to offset the adverse effect of dismissal taxes on the value of the firm. The introduction of …

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 … externalities, which modify optimal tax formulas. I show that optimal employment subsidies (such as the EITC) phase in with income …