Business Cycle Dependent Unemployment Benefits with Wealth Heterogeneity and Precautionary Savings

Mark Strøm Kristoffersen ()
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Mark Strøm Kristoffersen: Department of Economics and Business, Aarhus University, Denmark, Postal: 8210 Aarhus V, Denmark

Economics Working Papers from Department of Economics and Business Economics, Aarhus University

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.

Keywords: Unemployment insurance; business cycles; wealth heterogeneity; precautionary savings (search for similar items in EconPapers)
JEL-codes: E32 H3 J65 (search for similar items in EconPapers)
Pages: 36
Date: 2012-08-30
New Economics Papers: this item is included in nep-dge, nep-ias, nep-lab and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:aah:aarhec:2012-19

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