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Automatic Stabilizers and Economic Crisis: US vs. Europe

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  • Mathias Dolls

    ()

  • Clemens Fuest

    ()

  • Andreas Peichl

    ()

Abstract

This paper analyzes the effectiveness of social protection systems in Europe and the US to provide (income) insurance against macro level shocks in terms of automatic stabilizers. We find that automatic stabilizers absorb 38% of a proportional income shock and 47% of an idiosyncratic unemployment shock in Europe, compared to 32% and 34% in the US. There is large heterogeneity within Europe with stabilization being much lower in Eastern and Southern than in Central and Northern Europe. Our results suggest that social transfers, in particular the rather generous systems of unemployment insurance in Europe, play a key role for the stabilization of disposable incomes and explain a large part of the difference in automatic stabilizers between Europe and the US.

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Bibliographic Info

Paper provided by Cologne Graduate School in Management, Economics and Social Sciences in its series Cologne Graduate School Working Paper Series with number 01-02.

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Date of creation: 16 Jul 2010
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Handle: RePEc:cgr:cgsser:01-02

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Keywords: Automatic Stabilization; Crisis; Liquidity Constraints; Fiscal Stimulus;

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