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Theoretical and Applied Economics
No. 1 / 2012 (566)

Negative Income Tax and Labor Market Participation. A Short Run Analysis

Samir AMINE
Université du Quebèc en Outaouais and CIRANO, Canada
Pedro LAGES DOS SANTOS
University of Le Havre, France

Abstract. This article examines the effects of the negative income tax, in a matching model, on labor market participation. We show that the introduction of such instrument reduces unemployment and improves the situation of the poorest. But, amazingly, it provokes a fall on labor market participation principally because the agents are then less selective. We find another surprising result: despite the rise on participation, the increasing of unemployment benefits improves the situation of the firms at the expense of workers.

Keywords: matching; participation; negative income tax.

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