The Fiscal Costs of Unemployment Insurance

Abstract

This paper studies the fiscal costs of unemployment insurance (UI). It surveys alternative methods used in the literature to estimate the impact of UI on government budgets and compares them within a unified framework that incorporates behavioral responses, wage effects, and fiscal externalities. These methods are then applied to administrative data from Argentina. Combined with estimates of the consumption drop following unemployment, the paper evaluates the Marginal Value of Public Funds (MVPF) for UI and finds that, while results vary depending on the treatment of fiscal externalities, MVPF is generally above one—indicating that the social benefits of marginal increases in UI outweigh their fiscal costs.