Optimal Automatic Stabilizers

  title={Optimal Automatic Stabilizers},
  author={Alisdair McKay and Ricardo Ferreira Reis},
  journal={NBER Working Paper Series},
Should the generosity of unemployment benefits and the progressivity of income taxes depend on the presence of business cycles? This paper proposes a tractable model where there is a role for social insurance against uninsurable shocks to income and unemployment, as well as business cycles that are inefficient due to the presence of matching frictions and nominal rigidities. We derive an augmented Baily–Chetty formula showing that the optimal generosity of the social insurance system depends… 
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