Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/232638 
Year of Publication: 
2020
Series/Report no.: 
IZA Discussion Papers No. 13886
Publisher: 
Institute of Labor Economics (IZA), Bonn
Abstract: 
Consider a union of atomistic member states, each faced with idiosyncratic business-cycle shocks. Private cross-border risk-sharing is limited, giving a role to a federal unemployment-based transfer scheme. Member states control local labor-market policies, giving rise to a trade-off between moral hazard and insurance. Calibrating the economy to a stylized European Monetary Union, we find notable welfare gains if the federal scheme's payouts take the member states' past unemployment level as a reference point. Member states' control over policies other than unemployment benefits can limit generosity during the transition phase.
Subjects: 
unemployment reinsurance
labor-market policy
fiscal federalism
search and matching
JEL: 
E32
E24
E62
Document Type: 
Working Paper

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