An article by Francesco Daveri and Guido Tabellini (2000) combines empirics and a general-equilibrium overlapping-generations model to recommend the reduction of labor taxation and pension expenditures. I demonstrate that, in the model, unemployment would be zero if unemployment benefits remained between zero and a certain value that is dependent on the level of wage taxation. My demonstration leads to two questions: (1) Why should the government introduce unemployment benefits in an economy that otherwise would always operate at full employment? (2) Why is the reader led to believe that the reduction of labor taxation and pension expenditure are the main economic policy indications that derive from the model? Since, in the Daveri and Tabellini model, unemployment benefits are a waste of resources, the reduction of unemployment benefits is the best way to reduce unemployment.

Model distraction: A comment on Daveri and Tabellini / Imperia, Andrea. - In: ECON JOURNAL WATCH. - ISSN 1933-527X. - ELETTRONICO. - 10:1(2013), pp. 15-24.

Model distraction: A comment on Daveri and Tabellini

IMPERIA, Andrea
2013

Abstract

An article by Francesco Daveri and Guido Tabellini (2000) combines empirics and a general-equilibrium overlapping-generations model to recommend the reduction of labor taxation and pension expenditures. I demonstrate that, in the model, unemployment would be zero if unemployment benefits remained between zero and a certain value that is dependent on the level of wage taxation. My demonstration leads to two questions: (1) Why should the government introduce unemployment benefits in an economy that otherwise would always operate at full employment? (2) Why is the reader led to believe that the reduction of labor taxation and pension expenditure are the main economic policy indications that derive from the model? Since, in the Daveri and Tabellini model, unemployment benefits are a waste of resources, the reduction of unemployment benefits is the best way to reduce unemployment.
2013
european unemployment; pension system reform; trade unions; unemployment benefits; wage taxation
01 Pubblicazione su rivista::01a Articolo in rivista
Model distraction: A comment on Daveri and Tabellini / Imperia, Andrea. - In: ECON JOURNAL WATCH. - ISSN 1933-527X. - ELETTRONICO. - 10:1(2013), pp. 15-24.
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Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11573/514650
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