A simple proposal to improve fiscal policy

Payroll taxes (a.k.a. Employer’s National Insurance Contribution in the UK) should vary inversely with how long the employee had been unemployed at the time of taking the job.

Or, perhaps, there should be a straight discount on payroll taxes for an employee that was unemployed when hired, but the duration for which the discount applies should be proportional to the length of time they had been unemployed.

Either way, this should be a permanent part of the tax system – thereby providing another automatic stabiliser to fiscal policy, both in boom times and recessions.

This idea is not unique to me.

This idea is conditional on Central Bank policy not reducing the fiscal multiplier to zero.

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