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Unemployment insurance fraud and optimal monitoring

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Author Info

  • David L. Fuller
  • B. Ravikumar
  • Yuzhe Zhang

Abstract

The most prevalent incentive problem in the U.S. unemployment insurance system is that individuals collect unemployment benefits while being gainfully employed. We show how the unemployment insurance authority can efficiently use a combination of tax/subsidy and monitoring to prevent such fraud. The optimal policy monitors the unemployed at fixed intervals. Employment tax is nonmonotonic: it increases between verifications but decreases after a verification. Unemployment benefits are relatively flat between verifications but decrease sharply after a verification.

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Bibliographic Info

Paper provided by Federal Reserve Bank of St. Louis in its series Working Papers with number 2012-024.

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Date of creation: 2012
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Handle: RePEc:fip:fedlwp:2012-024

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Keywords: Unemployment ; Insurance;

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References

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  1. Ravikumar, B. & Zhang, Yuzhe, 2010. "Optimal Auditing in a Dynamic Model of Tax Compliance," MPRA Paper 23218, University Library of Munich, Germany.
  2. Fernando Álvarez-Parra & Juan M. Sanchez, 2009. "Unemployment insurance with a hidden labor market," Working Paper 09-09, Federal Reserve Bank of Richmond.
  3. Setty, Ofer, 2009. "Optimal Unemployment Insurance with Monitoring," MPRA Paper 18188, University Library of Munich, Germany.
  4. Zhang, Yuzhe, 2009. "Dynamic Contracting with Persistent Shocks," MPRA Paper 23108, University Library of Munich, Germany.
  5. Pavoni, Nicola, 2007. "On optimal unemployment compensation," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1612-1630, September.
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Cited by:
  1. Georges Dionne, 2012. "The Empirical Measure of Information Problems with Emphasis on Insurance Fraud and Dynamic Data," Cahiers de recherche 1233, CIRPEE.
  2. Stéphane Auray & David L. Fuller & damba Lkhagvasuren, 2013. "Unemployment Insurance Take-up Rate"s in an Equilibrium Search Model," Working Papers 2013-12, Centre de Recherche en Economie et Statistique.

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