Unemployment Accounts and Employment Incentives over the Life Cycle

The major goal in this thesis is to explore the potential impact of an unemployment account system on individuals' employment incentives. This thesis consists of three parts. In the first part (Chapter 2) we identify the extent of the intrapersonal income redistribution, which is inherent in the German tax-benefit system. Disentangling the income redistribution in this way shows that the extent of intrapersonal income redistribution in Germany is indeed very high. In particular, unemployment benefits exhibit a large share of redistribution that occurs within the life cycle of the individuals. In the second part (Chapter 3) we investigate whether replacing the traditional German unemployment insurance system by unemployment accounts will improve employment incentives and thereby also the overall unemployment rate. We employ a stochastic life-cycle framework to study how the trade-off between labor market incentives, consumption and savings is affected under a system of unemployment accounts. In Chapter 4 we stress the role of the financial perspective and determine the optimal tax rate both in the long-run and during a transition period. In the first part of this chapter we implement a pay-as-you-go structure in the unemployment account system with a balanced government budget and identify the optimal long-run tax rate. Moreover, we investigate how the employment incentives and the unemployment rate behave in the long-run and how they react to the adjusted tax rate, which prevails in the long-run. In the second part of this chapter we identify the optimal tax rate during the transition period when switching from the UI system to the UA system.


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