THE EFFECTS OF FIRM SPECIFIC TAXES AND GOVERNMENT MANDATES WITH AN APPLICATION TO THE US UNEMPLOYMENT-INSURANCE PROGRAM

We examine the common, but unexamined, case of a tax or government man date whose cost differs across firms within the same labor market. Our theoretical model shows that this variation can lead to employment re allocation across firms and dead-weight losses, even if there is no ag gregate employment effect. Using firm level unemployment insurance tax data, we find that while the market level tax is mostly born by the w orker, individual firms can only pass on a small share of the within m arket differences. Thus, in some cases differences in taxes across fir ms can lead to large dead-weight losses.