TY  - RPRT
        AU  - Koehne, Sebastian
AU  - Kuhn, Moritz
        TI  - Should Unemployment Insurance Be Asset-Tested?
        PY  - 2013/Jul/
        PB  - Institute of Labor Economics (IZA)
        CY  - Bonn
        T2  - IZA Discussion Paper
        IS  - 7488
        UR  - https://www.iza.org/index.php/publications/dp7488
        AB  - We study asset-tested unemployment insurance in an incomplete markets model with moral hazard during job search. Asset testing has two counteracting effects on welfare. On the one hand, it improves consumption insurance by introducing state contingent transfers to agents most in need. On the other hand, it worsens the moral hazard problem, since workers have a reduced incentive to save and fewer private resources are used for consumption smoothing during unemployment. Our results show that in a realistically calibrated model of the U.S. economy the two effects nearly offset each other – the optimal rate of asset-testing is approximately zero. This finding is robust to several alternative specifications of the model, including a case with heterogeneous time-discount factors. We conclude that the current U.S. unemployment insurance system is approximately optimal.
        KW  - incomplete markets
KW  - asset-testing
KW  - unemployment insurance
KW  - consumption and saving
        ER  -