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Whether, when and how to extend unemployment benefits: Theory and application to COVID-19
Stockholm University, Faculty of Social Sciences, Institute for International Economic Studies. CEPR & IZA, Sweden.
Number of Authors: 22021 (English)In: Journal of Public Economics, ISSN 0047-2727, E-ISSN 1879-2316, Vol. 200, article id 104447Article in journal (Refereed) Published
Abstract [en]

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.

Place, publisher, year, edition, pages
2021. Vol. 200, article id 104447
Keywords [en]
Unemployment insurance, Optimal Policy, COVID-19
National Category
Economics and Business
Identifiers
URN: urn:nbn:se:su:diva-196988DOI: 10.1016/j.jpubeco.2021.104447ISI: 000677702600008OAI: oai:DiVA.org:su-196988DiVA, id: diva2:1596143
Available from: 2021-09-21 Created: 2021-09-21 Last updated: 2022-02-25Bibliographically approved

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Mitman, Kurt

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