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Whether, when and how to extend unemployment benefits: Theory and application to COVID-19

Kurt Mitman and Stanislav Rabinovich

Journal of Public Economics, 2021, vol. 200, issue C

Abstract: We investigate the optimal response of unemployment insurance to economic shocks, both with and without commitment. The optimal policy with commitment follows a modified Baily-Chetty formula that accounts for job search responses to future UI benefit changes. As a result, the optimal policy with commitment tends to front-load UI, unlike the optimal discretionary policy. In response to shocks intended to mimic those that induced the COVID-19 recession, we find that a large and transitory increase in UI is optimal; and that a policy rule contingent on the change in unemployment, rather than its level, is a good approximation to the optimal policy.

Keywords: Unemployment insurance; Optimal Policy; COVID-19 (search for similar items in EconPapers)
Date: 2021
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Working Paper: Whether, When and How to Extend Unemployment Benefits: Theory and Application to COVID-19 (2021) Downloads
Working Paper: Whether, When and How to Extend Unemployment Benefits: Theory and Application to COVID-19 (2021) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:eee:pubeco:v:200:y:2021:i:c:s0047272721000839

DOI: 10.1016/j.jpubeco.2021.104447

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