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Federal Reserve Bank of St. Louis
Working Papers
Unemployment insurance fraud and optimal monitoring
David L. Fuller
B. Ravikumar
Yuzhe Zhang
Abstract

The most prevalent incentive problem in the U.S. unemployment insurance system is that individuals collect unemployment benefits while being gainfully employed. We show how the unemployment insurance authority can efficiently use a combination of tax/subsidy and monitoring to prevent such fraud. The optimal policy monitors the unemployed at fixed intervals. Employment tax is nonmonotonic: it increases between verifications but decreases after a verification. Unemployment benefits are relatively flat between verifications but decrease sharply after a verification.


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David L. Fuller & B. Ravikumar & Yuzhe Zhang, Unemployment insurance fraud and optimal monitoring, Federal Reserve Bank of St. Louis, Working Papers 2012-024, 2012.
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Keywords: Unemployment ; Insurance
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