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The design of unemployment transfers: Evidence from a dynamic structural life-cycle model

  • Victoria Prowse
  • Peter Haan

In this paper we use a dynamic structural life-cycle model to analyze the employment, fiscal and welfare effects induced by unemployment insurance.� The model features a detailed specification of the tax and transfer system, including unemployment insurance benefits which depend on an individual's employment and earnings history.� The model also captures the endogenous accumulation of experience which impacts on future wages, job arrivals and job separations.� For better identification of the structural parameters we exploit a quasi-natural experiment, namely reductions over time in the entitlement period for unemployment insurance benefits which varied by age and experience.� The results show that a policy cut in the generosity of unemployment insurance operationalized as a reduction in the entitlement period generates a larger increase in employment and yields a bigger fiscal saving than�a cut operationalized as a reduction in the replacement ratio.� Welfare analysis of revenue neutral tax and transfer reforms also favors a reduction in the entitlement period.

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File URL: http://www.economics.ox.ac.uk/materials/working_papers/paper478.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 478.

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Date of creation: 01 Feb 2010
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Handle: RePEc:oxf:wpaper:478
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Web page: http://www.economics.ox.ac.uk/
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