Template-Type: ReDIF-Paper 1.0
Author-Name: Alexander Karaivanov
Author-X-Name-First: Alexander
Author-X-Name-Last: Karaivanov
Author-Name: Benoit Mojon
Author-X-Name-First: Benoit
Author-X-Name-Last: Mojon
Author-Name: Luiz Awazu Pereira da Silva
Author-X-Name-First: Luiz Awazu
Author-X-Name-Last: Pereira da Silva
Author-Name: Albert Pierres Tejada
Author-X-Name-First: Albert
Author-X-Name-Last: Pierres Tejada
Author-Name: Robert M Townsend
Author-X-Name-First: Robert M
Author-X-Name-Last: Townsend
Title: Incentive-compatible unemployment reinsurance for the euro area
Abstract: We model a reinsurance mechanism for the national unemployment insurance programs of euro area member states. The proposed risk-sharing scheme is designed to smooth country-level unemployment risk and expenditures around each country's median level, so that participation and contributions remain incentive-compatible at all times and there are no redistributionary transfers across countries. We show that, relative to the status quo, such scheme would have provided nearly perfect insurance of the euro area member states' unemployment expenditures risk in the aftermath of the 2009 sovereign debt crisis if allowed to borrow up to 2 percent of the euro area GDP. Limiting, or not allowing borrowing by the scheme would have still provided significant smoothing of surpluses and deficits in the national unemployment insurance programs over the period 2000-2019.
Creation-Date: 2024-04
File-URL: https://www.bis.org/publ/work1180.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1180.htm
File-Format: text/html
Number: 1180
Keywords: unemployment insurance, risk sharing, reinsurance, euro area, fiscal policy, mechanism design, limited commitment
Classification-JEL: E62, J65, F32
Handle: RePEc:bis:biswps:1180