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Michael T. Feil
''Funding public health care: A flat-rate premium might be bad for employment''
( 2006, Vol. 10 No.3 )
If "tax progression is good for employment in popular models of trade union behaviour" (Koskela and Vilmunen, 1996), then a flat-rate premium, as proposed as a means of funding for public health care, is bad. This note shows that replacing existing (proportional) social security contributions by a lump-sum payment increases labour costs and thus reduces employment. This result holds - for empirically relevant parameters - even in a more general case than the one considered by Koskela and Vilmunen. Policy advisers should be aware that in imperfect competitive labour markets the prima facie attractiveness of a flat-rate premium is not for sure.
JEL: J5 - Labor-Management Relations, Trade Unions, and Collective Bargaining: General
H2 - Taxation, Subsidies, and Revenue: General
Manuscript Received : Feb 28 2006 Manuscript Accepted : Mar 23 2006

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