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This paper examines the optimal time-consistent unemployment insurance policy in a search economy with incomplete markets. In a context of repeated choice without a commitment device, we show that the optimal replacement rate depends on how frequently in time the policy can be revised. The exact relation is dependent on the political process: if the utilitarian welfare criterion is used, the optimal rate is higher the shorter the choice periodicity. Self-insurance reduces the need for the public scheme but mostly because the policy cannot be changed often enough. The comparison with an economy where a commitment device is assumed shows that the commitment rate is close to time-consistent rates with very long choice periodicities. ; The ADEMU Working Paper Series is being supported by the European Commission Horizon 2020 European Union funding for Research & Innovation, grant agreement No 649396.

International audience ; This paper reconsiders the impact of public debt in an economy with heterogeneous households and incomplete markets to emphasize the short-run effects of an increase in public debt. As compared to models that rest on steady-state analysis, we show that the welfare gains of a public debt increase are substantially higher when transitional dynamics are accounted for. The additional debt issue allows for a temporary reduction in the income tax rate, which stimulates labor supply and generates an overshooting of the interest rate. The short-run gains create a temptation to deviate toward higher levels of debt. Debt increases continue to generate welfare gains even when debt is considerably higher than its long-run optimal level.

International audience ; This paper reconsiders the impact of public debt in an economy with heterogeneous households and incomplete markets to emphasize the short-run effects of an increase in public debt. As compared to models that rest on steady-state analysis, we show that the welfare gains of a public debt increase are substantially higher when transitional dynamics are accounted for. The additional debt issue allows for a temporary reduction in the income tax rate, which stimulates labor supply and generates an overshooting of the interest rate. The short-run gains create a temptation to deviate toward higher levels of debt. Debt increases continue to generate welfare gains even when debt is considerably higher than its long-run optimal level.

International audience ; This paper reconsiders the impact of public debt in an economy with heterogeneous households and incomplete markets to emphasize the short-run effects of an increase in public debt. As compared to models that rest on steady-state analysis, we show that the welfare gains of a public debt increase are substantially higher when transitional dynamics are accounted for. The additional debt issue allows for a temporary reduction in the income tax rate, which stimulates labor supply and generates an overshooting of the interest rate. The short-run gains create a temptation to deviate toward higher levels of debt. Debt increases continue to generate welfare gains even when debt is considerably higher than its long-run optimal level.

Dans cet article, nous analysons les interactions entre les politiques de dette publique et de transfert dans le modèle de Floden [2001], que nous étendons en modélisant la dynamique transitoire d'un état stationnaire à un autre. Dans un premier temps, dans le cas où la dette aurait atteint un niveau élevé, nous montrons qu'il est possible de mettre en œuvre une politique de désendettement de l'Etat qui ne détériore pas le bien-être, en l'associant à un ajustement transitoire du transfert. Dans un second temps, nous proposons un équilibre intégrant les incitations à court terme de surprendre les agents en modifiant les niveaux de dette publique et de transferts. Nous montrons que l'optimum de long terme sur la dette et les transferts proposé par Floden [2001] n'est pas stable au regard de ces incitations. Quantitativement, l'équilibre que nous obtenons s'éloigne considérablement de ce dernier.

National audience ; In this paper, we investigate the interactions between public debt and transfer policies in a framework based on Floden [2001], that we extend to allow for transitional dynamics between steady states. First, we show that, starting from a high level of public debt, it is possible to implement a policy that reduces public debt without generating welfare losses, as long as it is associated with transitory transfers adjustments. Secondly, we define and compute an equilibrium that takes into consideration the government's incentive to implement unexpected adjustments in both public debt and transfers. We show that the long run equilibrium over public debt and transfers in Floden [2001] is not stable with respect to these short term incentives. Simulations reveal that our equilibrium and Floden [2001]'s one considerably differ in quantitative terms. ; Dans cet article, nous analysons les interactions entre les politiques de dette publique et de transfert dans le modèle de Floden [2001], que nous étendons en modélisant la dynamique transitoire d'un état stationnaire à un autre. Dans un premier temps, dans le cas où la dette aurait atteint un niveau élevé, nous montrons qu'il est possible de mettre en œuvre une politique de désendettement de l'Etat qui ne détériore pas le bien-être, en l'associant à un ajustement transitoire du transfert. Dans un second temps, nous proposons un équilibre intégrant les incitations à court terme de surprendre les agents en modifiant les niveaux de dette publique et de transferts. Nous montrons que l'optimum de long terme sur la dette et les transferts proposé par Floden [2001] n'est pas stable au regard de ces incitations. Quantitativement, l'équilibre que nous obtenons s'éloigne considérablement de ce dernier.

National audience ; In this paper, we investigate the interactions between public debt and transfer policies in a framework based on Floden [2001], that we extend to allow for transitional dynamics between steady states. First, we show that, starting from a high level of public debt, it is possible to implement a policy that reduces public debt without generating welfare losses, as long as it is associated with transitory transfers adjustments. Secondly, we define and compute an equilibrium that takes into consideration the government's incentive to implement unexpected adjustments in both public debt and transfers. We show that the long run equilibrium over public debt and transfers in Floden [2001] is not stable with respect to these short term incentives. Simulations reveal that our equilibrium and Floden [2001]'s one considerably differ in quantitative terms. ; Dans cet article, nous analysons les interactions entre les politiques de dette publique et de transfert dans le modèle de Floden [2001], que nous étendons en modélisant la dynamique transitoire d'un état stationnaire à un autre. Dans un premier temps, dans le cas où la dette aurait atteint un niveau élevé, nous montrons qu'il est possible de mettre en œuvre une politique de désendettement de l'Etat qui ne détériore pas le bien-être, en l'associant à un ajustement transitoire du transfert. Dans un second temps, nous proposons un équilibre intégrant les incitations à court terme de surprendre les agents en modifiant les niveaux de dette publique et de transferts. Nous montrons que l'optimum de long terme sur la dette et les transferts proposé par Floden [2001] n'est pas stable au regard de ces incitations. Quantitativement, l'équilibre que nous obtenons s'éloigne considérablement de ce dernier.

National audience ; In this paper, we investigate the interactions between public debt and transfer policies in a framework based on Floden [2001], that we extend to allow for transitional dynamics between steady states. First, we show that, starting from a high level of public debt, it is possible to implement a policy that reduces public debt without generating welfare losses, as long as it is associated with transitory transfers adjustments. Secondly, we define and compute an equilibrium that takes into consideration the government's incentive to implement unexpected adjustments in both public debt and transfers. We show that the long run equilibrium over public debt and transfers in Floden [2001] is not stable with respect to these short term incentives. Simulations reveal that our equilibrium and Floden [2001]'s one considerably differ in quantitative terms. ; Dans cet article, nous analysons les interactions entre les politiques de dette publique et de transfert dans le modèle de Floden [2001], que nous étendons en modélisant la dynamique transitoire d'un état stationnaire à un autre. Dans un premier temps, dans le cas où la dette aurait atteint un niveau élevé, nous montrons qu'il est possible de mettre en œuvre une politique de désendettement de l'Etat qui ne détériore pas le bien-être, en l'associant à un ajustement transitoire du transfert. Dans un second temps, nous proposons un équilibre intégrant les incitations à court terme de surprendre les agents en modifiant les niveaux de dette publique et de transferts. Nous montrons que l'optimum de long terme sur la dette et les transferts proposé par Floden [2001] n'est pas stable au regard de ces incitations. Quantitativement, l'équilibre que nous obtenons s'éloigne considérablement de ce dernier.

In this paper, we investigate the interactions between public debt and transfer policies in a framework based on Floden [2001], that we extend to allow for transitional dynamics between steady states. First, we show that, starting from a high level of public debt, it is possible to implement a policy that reduces public debt without generating welfare losses, as long as it is associated with transitory transfers adjustments. Secondly, we define and compute an equilibrium that takes into consideration the government's incentive to implement unexpected adjustments in both public debt and transfers. We show that the long run equilibrium over public debt and transfers in Floden [2001] is not stable with respect to these short term incentives. Simulations reveal that our equilibrium and Floden [2001]'s one considerably differ in quantitative terms. Adapted from the source document.