Social Protection as an Automatic Stabilizer
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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- Carmen M. Reinhart & Kenneth S. Rogoff, 2008. "This Time is Different: A Panoramic View of Eight Centuries of Financial Crises," CEMA Working Papers 595, China Economics and Management Academy, Central University of Finance and Economics.
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