Department of Economics and Business Economics

Business Cycle Dependent Unemployment Benefits with Wealth Heterogeneity and Precautionary Savings

Research output: Working paperResearch

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  • Wp12 19

    Submitted manuscript, 585 KB, PDF document

  • Mark Strøm Kristoffersen, Denmark
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 benefits 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.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Universitet
Number of pages36
Publication statusPublished - 30 Aug 2012
SeriesEconomics Working Papers
Number2012-19

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