Cross-country unemployment insurance, transfers, and trade-offs in international risk sharing

Zeno Enders and David Vespermann

Journal of Monetary Economics, 2024, vol. 147, issue S

Abstract: A prerequisite for an optimum currency area are limited divergent developments. In this paper, we assess analytically whether an international transfer mechanism can enhance consumption risk sharing and efficiency of the international division of production in a monetary union. We also derive quantitative results for a potential European unemployment benefit scheme (EUBS). A EUBS can provide risk sharing by stabilizing relative consumption and unemployment differentials. Following supply and government-spending shocks, however, a EUBS would additionally reduce allocative efficiency. The welfare effects of a EUBS hence depend on the underlying cause for cross-country differentials. A EUBS that is only active after specific shocks would maximize overall welfare. Even without such a selective activation, a EUBS would raise welfare in European Core countries in the quantitative model, leaving welfare in the Periphery almost unchanged. During the euro crisis, the Periphery would have benefited from substantial transfers from the Core.

Keywords: Cross-country transfers; International unemployment insurance; EMU; European business cycles; Optimum currency area; Structural reforms (search for similar items in EconPapers)
JEL-codes: E32 F44 F45 (search for similar items in EconPapers)
Date: 2024
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Working Paper: Cross-Country Unemployment Insurance, Transfers, and Trade-Offs in International Risk Sharing (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:147:y:2024:i:s:s0304393224000758

DOI: 10.1016/j.jmoneco.2024.103622

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