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POSTPONED - PCaMS: Antoine Ferey - Redistributive Taxation, Unemployment Insurance, and Make-work-pay

  • PWBM's Philadelphia Office 3440 Market St. Suite 300 Philadelphia United States (map)

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In light of the COVID-19 outbreak and University of Pennsylvania event restrictions, this seminar has been postponed. We hope you remain safe and healthy, and we look forward to communicating with you about future events soon. 

For more information on how the University of Pennsylvania is responding to the COVID-19 outbreak, visit the Penn Coronavirus website.


Location: PWBM’s Philadelphia Office
Date / Time: Thursday, April 9, 12:00 PM - 1:30 PM

Antoine Ferey is a PhD candidate in Economics at CREST, Ecole Polytechnique. His research in Public Economics focuses on the optimal design of tax and transfer systems with an emphasis on the topic of tax complexity. In recent work, he shows that although inattention and underreaction to taxes have the potential to reduce the efficiency cost of taxation, they may ultimately lead to inefficiently high and regressive taxes. This "taxation bias" arises when the government cannot ex-ante commit to its tax policy. In on-going work, he studies optimal redistributive taxation and unemployment insurance, and shows that interactions between redistribution and insurance hold important and unexplored policy implications. He will present the paper “Redistributive Taxation, Unemployment Insurance, and Make-work-pay.”

Redistributive Taxation, Unemployment Insurance, and Make-work-pay

Abstract: This paper studies the interactions between redistribution and social insurance in a general framework that nests two cornerstones of public economics: the Mirrlees-Saez optimal income taxation model and the Baily-Chetty optimal unemployment insurance model. In a mechanism design approach, I characterize optimal second-best allocations under different mechanisms. Optimal second-best allocations can be implemented with three common policy instruments. (1) A redistributive tax and transfer schedule conditional on income, (2) an actuarially fair unemployment insurance with eligibility requirements, and (3) an earnings subsidy conditional on labor income when employed akin to the EITC or similar make-work-pay transfer programs. In a perturbation approach, I provide sufficient statistics formulas for the optimal schedules of these instruments that transparently highlight the conflicting interactions between redistribution and social insurance. On the efficiency side, each exerts a mechanical negative fiscal externality on the other, but at the same time they act as complements in providing incentives to work and search for a job. On the welfare side, redistributive transfers are substitutes for unemployment benefits, but at the same time higher redistributive tastes call for both higher transfers and more insurance for low-income people. Overall, the analysis provides novel foundations for observed features of policy design and calls for the estimation of new sufficient statistics for integrated policy recommendations.