Abstract
An important incentive problem for the design of unemployment insurance is the fraudulent collection of unemployment benefits by workers who are gainfully employed. We show how to efficiently use a combination of tax/subsidy and monitoring to prevent such fraud. The optimal policy monitors the unemployed at fixed intervals. Employment tax is nonmonotonic: it increases between verifications but decreases after a verification. Unemployment benefits are relatively flat between verifications but decrease sharply after a verification. Our quantitative analysis suggests that the optimal monitoring cost is 60 percent of the cost in the current US system. (JEL D82, H24, J64, J65).
Original language | English (US) |
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Pages (from-to) | 249-290 |
Number of pages | 42 |
Journal | American Economic Journal: Macroeconomics |
Volume | 7 |
Issue number | 2 |
DOIs | |
State | Published - 2015 |
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)