Income insurance: a theoretical exercise with empirical application for the euro area

Nicolas Carnot, Phil Evans, Serena Fatica and Gilles Mourre

No 546, European Economy - Economic Papers 2008 - 2015 from Directorate General Economic and Financial Affairs (DG ECFIN), European Commission

Abstract: The recent crisis has shown how economic shocks can lead to considerable and persistent cyclical divergences in the euro area. Successful monetary unions have generally been backed by fiscal arrangements providing income insurance against shocks. This paper reviews the potential issues, the underlying trade-offs and the necessary theoretical conditions to make an income insurance scheme workable, and provides an empirical application for the euro area. It also discusses ‘good’ design features, arguing that such schemes should focus on large shocks and exert a moderating effect during boom times, as well as provide cushioning against adverse shocks.

JEL-codes: E61 E62 F36 F42 H77 (search for similar items in EconPapers)
Pages: 84 pages
Date: 2015-03
New Economics Papers: this item is included in nep-eec, nep-mac and nep-pbe
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Citations: View citations in EconPapers (8)

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Persistent link: https://EconPapers.repec.org/RePEc:euf:ecopap:0546

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