Should Unemployment Insurance be Asset-Tested

Sebastian Koehne and Moritz Kuhn

No 4324, CESifo Working Paper Series from CESifo

Abstract: We study asset-tested unemployment insurance in an incomplete markets model with moral hazard during job search. Asset testing has two counteracting effects on welfare. On the one hand, it improves consumption insurance by introducing state contingent transfers to agents most in need. On the other hand, it worsens the moral hazard problem, since workers have a reduced incentive to save and fewer private resources are used for consumption smoothing during unemployment. Our results show that in a realistically calibrated model of the U.S. economy the two effects nearly offset each other—the optimal rate of asset-testing is approximately zero. This finding is robust to several alternative specifications of the model, including a case with heterogeneous time-discount factors. We conclude that the current U.S. unemployment insurance system is approximately optimal.

Keywords: unemployment insurance; asset-testing; incomplete markets; consumption and saving (search for similar items in EconPapers)
JEL-codes: E21 E24 J65 (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Should unemployment insurance be asset-tested? (2015)
Working Paper: Should Unemployment Insurance Be Asset-Tested? (2013)
Working Paper: Should unemployment insurance be asset-tested? (2012)
Working Paper: Should unemployment insurance be asset-tested? (2012)
Working Paper: Should unemployment insurance be asset-tested? (2012)
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