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Business Cycle Dependent Unemployment Benefits with Wealth Heterogeneity and Precautionary Savings

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  • Mark Strøm Kristoffersen

    (Department of Economics and Business, Aarhus University, Denmark)

Abstract

In the wake of the financial and economic crisis the discussion about social insurance and optimal stabilization policies has re-blossomed. This paper adds to the literature by studying the effects of a business cycle dependent level of unemployment benefits in a model with labor market matching, wealth heterogeneity, precautionary savings, and aggregate fluctuations in productivity. The results are ambiguous: both procyclical and countercyclical unemployment benefi?ts can increase welfare relative to business cycle invariant benefits. Procyclical benefits are beneficial due to countercyclicality of the distortionary effect (on job creation) from providing unemployment insurance, whereas countercyclical benefits facilitate consumption smoothing.

Suggested Citation

  • Mark Strøm Kristoffersen, 2012. "Business Cycle Dependent Unemployment Benefits with Wealth Heterogeneity and Precautionary Savings," Economics Working Papers 2012-19, Department of Economics and Business Economics, Aarhus University.
    • Handle: RePEc:aah:aarhec:2012-19
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    File URL: https://repec.econ.au.dk/repec/afn/wp/12/wp12_19.pdf
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    References listed on IDEAS

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    Cited by:

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    More about this item

    Keywords

    Unemployment insurance; business cycles; wealth heterogeneity; precautionary savings;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • H3 - Public Economics - - Fiscal Policies and Behavior of Economic Agents
    • J65 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Unemployment Insurance; Severance Pay; Plant Closings

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