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Demand for LaborThe Neglected Side of the Market$
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Daniel S. Hamermesh and Corrado Giulietti

Print publication date: 2017

Print ISBN-13: 9780198791379

Published to Oxford Scholarship Online: March 2017

DOI: 10.1093/acprof:oso/9780198791379.001.0001

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Policy Equilibria in a Federal System: The Effects of Higher Tax Ceilings for Unemployment Insurance

Policy Equilibria in a Federal System: The Effects of Higher Tax Ceilings for Unemployment Insurance

Chapter:
11 Policy Equilibria in a Federal System: The Effects of Higher Tax Ceilings for Unemployment Insurance
Source:
Demand for Labor
Author(s):

Daniel S. Hamermesh

Daniel S. Hamermesh

Daniel S. Hamermesh

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198791379.003.0011

In a large variety of multilevel political systems changes imposed by a higher authority alter the equilibrium panoply of lower-level policies. As an example we describe how the equilibrium parameters of American states’ unemployment insurance (UI) systems are changed when the federal government raises the minimum annual earnings on which employers are taxed to finance UI benefits. Even though benefits determine total taxes at a point in time within state systems, bargaining among the interested parties alters the equilibrium level of benefits and taxes. We estimate a ‘difference-in-differences’ model describing total system costs in those states where federal increases in 1972, 1978 and 1983 forced increases in the tax ceiling. Holding constant changes in interstate differences in unemployment, where the federal constraint was binding costs rose roughly 20 percent above where they would have been.

Keywords:   Fiscal federalism, labor-market policy, unemployment insurance, taxable ceilings, unemployment benefits

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