Liquidity Substitutes for Public Unemployment Insurance: Evidence from the Introduction of Home Equity Loans in Denmark

Kristoffer Markwardt, Alessandro Martinello and László Sándor
Authors registered in the RePEc Author Service: László Sándor ()

Working Paper from Harvard University OpenScholar

Abstract: Facing risk, people take precautions by insuring themselves through both formal and informal insurance channels. But are private savings merely an inferior, dominated alterna- tive to formal insurance schemes, or are the two options mutual substitutes? To answer this question, we exploit that a sudden introduction of home equity loans in Denmark exogenously provided some homeowners with unexpected liquidity. Using a ten-year, high-quality panel dataset drawn from Danish administrative registries, we find that those who were suddenly provided with extra liquidity were less likely to sign up for unemployment insurance afterwards compared to other homeowners, thereby showing that private informal insurance can substitute formal public insurance.

Date: 2014-09
New Economics Papers: this item is included in nep-ias and nep-iue
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