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Firing Tax vs. Severance Payment - An Unequal Comparison

Wesselbaum, Dennis (2009): Firing Tax vs. Severance Payment - An Unequal Comparison.

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The effects of firing costs crucially depend on the extend to which the additional costs can be shifted to the worker, which refers to the so called "bonding critique". In the recent literature about firing costs, these costs are assumed to be a wasteful tax, such that they can not be shifted to the worker. In this paper, we analyze the eects from respecting and non-respecting the bonding critique. We consistently show, that firing costs have to be introduced in a different way as severance payments. If they are introduced in a similar way, results are likely to be different, in particular for fluctuations of vacancies, unemployment and wages.

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