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Liquidity Substitutes for Public Unemployment Insurance: Evidence from the Introduction of Home Equity Loans in Denmark


  • Kristoffer Markwardt
  • Alessandro Martinello
  • László Sándor


Facing risk, people take precautions by insuring themselves through both formal and informal insurance channels. But are private savings merely an inferior, dominated alterna- tive to formal insurance schemes, or are the two options mutual substitutes? To answer this question, we exploit that a sudden introduction of home equity loans in Denmark exogenously provided some homeowners with unexpected liquidity. Using a ten-year, high-quality panel dataset drawn from Danish administrative registries, we find that those who were suddenly provided with extra liquidity were less likely to sign up for unemployment insurance afterwards compared to other homeowners, thereby showing that private informal insurance can substitute formal public insurance.

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  • Kristoffer Markwardt & Alessandro Martinello & László Sándor, 2014. "Liquidity Substitutes for Public Unemployment Insurance: Evidence from the Introduction of Home Equity Loans in Denmark," Working Paper 197781, Harvard University OpenScholar.
  • Handle: RePEc:qsh:wpaper:197781

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