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A Feasible Unemployment-Based Shock Absorber for the Euro Area

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  • Andrea Brandolini
  • Francesca Carta
  • Francesco D'Amuri

Abstract

This paper contributes to the debate on the design of a centralised fiscal tool absorbing country-specific negative shocks in the euro area. Based on theoretical insights, it identifies the broad characteristics that a shock absorber based on unemployment should have in order to be incentive-compatible and politically feasible. It then derives empirically the combination of activation thresholds, experience rating, eligibility criteria, and benefit generosity which define the systems offering the highest stabilisation for given levels of redistribution, accounting for the large variation in benefit take-up rates across European countries. The analysis suggests that the shock absorber should: i) give rise to macro cross-national transfers, mimicking those that would be generated by a notional euro-wide unemployment benefit scheme of minimal coverage and generosity; ii) be activated by a trigger; and iii) feature partial experience rating. The simulation results, confirmed by robustness checks, show that even systems that do not redistribute resources between countries can have a non-negligible stabilisation impact in the medium run. Low benefit take-up rates in Southern Europe substantially reduce the stabilisation properties and the size of the scheme.
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  • Andrea Brandolini & Francesca Carta & Francesco D'Amuri, 2016. "A Feasible Unemployment-Based Shock Absorber for the Euro Area," Journal of Common Market Studies, Wiley Blackwell, vol. 54(5), pages 1123-1141, September.
  • Handle: RePEc:bla:jcmkts:v:54:y:2016:i:5:p:1123-1141
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    File URL: http://hdl.handle.net/10.1111/jcms.12398
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    Cited by:

    1. Cinzia Alcidi & Mathias Dolls & Clemens Fuest & Carla Krolage & Florian Neumeier, 2017. "The Nature of Shocks in the Eurozone and Their Absorption Channels," EconPol Policy Reports 3, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    2. Jara Tamayo, Holguer Xavier & Tumino, Alberto & Sutherland, Holly, 2015. "The redistributive and stabilising effects of an EMU unemployment benefit scheme under different hypothetical unemployment scenarios," EUROMOD Working Papers EM18/15, EUROMOD at the Institute for Social and Economic Research.
    3. Stephane Moyen & Nikolai Stähler & Fabian Winkler, 2016. "Optimal Unemployment Insurance and International Risk Sharing," Finance and Economics Discussion Series 2016-054, Board of Governors of the Federal Reserve System (US).
    4. Boeri, Tito & Jimeno, Juan F., 2016. "Learning from the Great Divergence in unemployment in Europe during the crisis," Labour Economics, Elsevier, vol. 41(C), pages 32-46.
    5. Fabrizio Balassone & Sara Cecchetti & Martina Cecioni & Marika Cioffi & Wanda Cornacchia & Flavia Corneli & Gabriele Semeraro, 2016. "Risk Reduction and Risk Sharing in the Governance of the Euro Area," Politica economica, Società editrice il Mulino, issue 3, pages 463-488.
    6. Fabrizio Balassone & Sara Cecchetti & Martina Cecioni & Marika Cioffi & Wanda Cornacchia & Flavia Corneli & Gabriele Semeraro, 2018. "Economic governance in the euro area: balancing risk reduction and risk sharing," Chapters,in: Debt Default and Democracy, chapter 7, pages 124-154 Edward Elgar Publishing.
    7. Mathias Dolls & Clemens Fuest & Dirk Neumann & Andreas Peichl, 2018. "An unemployment insurance scheme for the euro area? A comparison of different alternatives using microdata," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(1), pages 273-309, February.
    8. Koester, Gerrit & Sondermann, David, 2018. "A euro area macroeconomic stabilisation function: assessing options in view of their redistribution and stabilisation properties," Occasional Paper Series 216, European Central Bank.
    9. Beblavý, Miroslav & Marconi, Gabriele & Maselli,Ilaria, 2015. "A European Unemployment Benefits Scheme: The rationale and the challenges ahead," CEPS Papers 10952, Centre for European Policy Studies.
    10. repec:euf:pfremu:pfr-2017-01 is not listed on IDEAS
    11. Léo Aparisi de Lannoy & Xavier Ragot, 2017. "Une (ré) assurance chômage européenne," Sciences Po publications info:hdl:2441/69i5rbio799, Sciences Po.
    12. Mathias Dolls & Nils Wehrhöfer, 2018. "Attitudes towards Euro Area Reforms: Evidence from a Randomized Survey Experiment," CESifo Working Paper Series 7141, CESifo Group Munich.
    13. Zareh Asatryan & Xavier Debrun & Annika Havlik & Friedrich Heinemann & Martin G. Kocher & Roberto Tamborini, 2018. "Which Role for a European Minister of Economy and Finance in a European Fiscal Union?," EconPol Policy Reports 6, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    14. Étienne Farvaque & Florence Huart, 2016. "Drowned by Numbers? Designing an EU-wide Unemployment Insurance," CIRANO Working Papers 2016s-33, CIRANO.
    15. Ralph Schmitt-Nilson, 2018. "Enhanced Fiscal Integration in the EMU? Proceedings of the joint workshop, organised by the European Commission, the European Stability Mechanism and the German Council of Economic Experts on 19 Septe," European Economy - Discussion Papers 2015 - 082, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    16. Dolls, Mathias, 2016. "Chances and risks of a European unemployment benefit scheme," ZEW policy briefs 7/2016, ZEW - Leibniz Centre for European Economic Research.

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    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings
    • H53 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Welfare Programs

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