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Social Protection as an Automatic Stabilizer

  • Dolls, Mathias

    ()

    (University of Cologne)

  • Fuest, Clemens

    ()

    (University of Oxford)

  • Peichl, Andreas

    ()

    (IZA)

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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Paper provided by Institute for the Study of Labor (IZA) in its series IZA Policy Papers with number 18.

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Length: 21 pages
Date of creation: Sep 2010
Date of revision:
Handle: RePEc:iza:izapps:pp18
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  1. Reinhart, Carmen M. & Rogoff, Kenneth S., 2009. "The Aftermath of Financial Crises," Scholarly Articles 11129155, Harvard University Department of Economics.
  2. Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," NBER Working Papers 13882, National Bureau of Economic Research, Inc.
  3. Paul van den Noord, 2000. "The Size and Role of Automatic Fiscal Stabilizers in the 1990s and Beyond," OECD Economics Department Working Papers 230, OECD Publishing.
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