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The German Unemployment Compensation System: Effects on Aggregate Savings and Wealth Distribution

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  • Heer, Burkhard

Abstract

The effects of the German unemployment compensation system on aggregate savings and the distribution of wealth are studied in a general equilibrium 60-period OLG model. The distribution of wealth is derived as an endogenous function of the parameters characterizing the unemployment compensation system, which comprises unemployment insurance (Arbeitslosengeld), unemployment assistance (Arbeitslosenhilfe), and welfare payments (Sozialhilfe), the latter two being subject to a means test. As our main results: (i) both aggregate savings and wealth equality are a monotone decreasing function of unemployment benefits; (ii) optimal unemployment compensation declines over the spell of unemployment; (iii) asset-based means tests are shown to reduce welfare if the allowable wealth level is below the average wealth in the economy. Copyright 2002 by The International Association for Research in Income and Wealth.

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Article provided by International Association for Research in Income and Wealth in its journal Review of Income & Wealth.

Volume (Year): 48 (2002)
Issue (Month): 3 (September)
Pages: 371-94

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Handle: RePEc:bla:revinw:v:48:y:2002:i:3:p:371-94

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Cited by:
  1. John P. Haisken-DeNew & Matthias Vorell, 2009. "Killing them with Kindness: Negative Distributional Externalities of Increasing UI Benefits," Ruhr Economic Papers 0121, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Heer, Burkhard & Morgenstern, Albrecht, 2000. "Indexation Of Unemployment Benefits To Previous Earnings, Employment And Wages," Discussion Papers in Economics 30, University of Munich, Department of Economics.

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