Incentive-Compatible Unemployment Reinsurance for the Euro Area

Alexander Karaivanov, Benoit Mojon, Luiz Pereira da Silva, Albert Pierres Tejada and Robert Townsend

No 32396, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We model a reinsurance mechanism for the national unemployment insurance programs of euro area member states. The risk-sharing scheme we analyze is designed to smooth country-level unemployment risk and expenditures around each country’s median level, so that participation and contributions remain incentive-compatible at all times and there are no redistributionary transfers across countries. We show that, relative to the status quo, such scheme would have provided nearly perfect insurance of the euro area member states’ unemployment expenditures risk in the aftermath of the 2009 sovereign debt crisis if allowed to borrow up to 2 percent of the euro area GDP. Limiting, or not allowing borrowing by the scheme would have still provided significant smoothing of surpluses and deficits in the national unemployment insurance programs over the period 2000–2019.

JEL-codes: E62 F32 J65 (search for similar items in EconPapers)
Date: 2024-05
New Economics Papers: this item is included in nep-eec, nep-eur and nep-lab
Note: IFM
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Working Paper: Incentive-compatible unemployment reinsurance for the euro area (2024)
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