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Optimal unemployment insurance and international risk sharing

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  • Moyen, Stéphane
  • Stähler, Nikolai
  • Winkler, Fabian

Abstract

If a group of countries were to introduce a common unemployment insurance system, what should it look like? Using a two-country business cycle model with incomplete financial markets and frictional labor markets, we show that the optimal replacement rate becomes more countercyclical relative to a closed economy, due to the planner’s desire for international risk sharing. Moreover, it is feasible to channel cross-country transfers through the unemployment insurance system without affecting unemployment levels. When we calibrate our model to Eurozone data, optimal transfers are sizable and stabilize consumption mainly in the periphery countries, while optimal replacement rates are countercyclical overall.

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  • Moyen, Stéphane & Stähler, Nikolai & Winkler, Fabian, 2019. "Optimal unemployment insurance and international risk sharing," European Economic Review, Elsevier, vol. 115(C), pages 144-171.
  • Handle: RePEc:eee:eecrev:v:115:y:2019:i:c:p:144-171
    DOI: 10.1016/j.euroecorev.2019.03.004
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    Cited by:

    1. 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.
    2. Marius Clemens & Guillaume Claveres, 2017. "Unemployment Insurance Union," 2017 Meeting Papers 1340, Society for Economic Dynamics.
    3. Verstegen, Loes, 2017. "On fiscal and monetary integration in Europe," Other publications TiSEM 49f73a6c-d32d-4dff-b5ec-4, Tilburg University, School of Economics and Management.
    4. Guilherme Bandeira & Evi Pappa & Rana Sajedi & Eugenia Vella, 2018. "Fiscal Consolidation in a Low-Inflation Environment: Pay Cuts versus Lost Jobs," International Journal of Central Banking, International Journal of Central Banking, vol. 14(3), pages 7-52, June.
    5. Matthaei, Stephan & Stähler, Nikolai, 2016. "Macroeconomic implications of the German financial equalization system," Annual Conference 2016 (Augsburg): Demographic Change 145695, Verein für Socialpolitik / German Economic Association.
    6. Bielecki, Marcin & Stähler, Nikolai, 2018. "Labor tax reductions in Europe: The role of property taxation," Discussion Papers 30/2018, Deutsche Bundesbank.
    7. Gadatsch, Niklas & Hollmayr, Josef & Stähler, Nikolai, 2016. "Thoughts on a fiscal union in EMU," Discussion Papers 40/2016, Deutsche Bundesbank.
    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. Stähler, Nikolai, 2019. "Who benefits from using property taxes to finance a labor tax wedge reduction?," Discussion Papers 03/2019, Deutsche Bundesbank.
    10. Fenge, Robert & Friese, Max, 2019. "Should unemployment insurance be centralized in a state union?," Thuenen-Series of Applied Economic Theory 162, University of Rostock, Institute of Economics.

    More about this item

    Keywords

    Unemployment insurance; International business cycles; Fiscal union; Optimal policy;

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • J64 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment: Models, Duration, Incidence, and Job Search

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