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Incentive-compatible unemployment reinsurance for the euro area
The euro area sovereign debt crisis brought back the debate on establishing additional fiscal instruments for the euro area. A centralized European unemployment benefits scheme has been one of the solutions proposed to strengthen the automatic fiscal stabilizers of the European Monetary Union. Existing proposals to set up a euro area unemployment reinsurance mechanism aim at exploiting the observed asymmetries in the cyclical fluctuations of unemployment rates of euro area member countries. These asymmetries mean that when unemployment is high in some countries it can be low in others. We propose a scheme derived ... (full story)