(unemployment generosity, tax wedge, active labour market policies, employment protection legislation, product market regulation …

We study optimal government spending in a business cycle model with frictional unemployment. The Ramsey optimal policy …

unemployment benefits reduce unemployment? Using a recent labour market reform in Germany as background, we find that an enhanced … effectiveness of the PEA explains about 20% of the observed post-reform unemployment decline. The role of unemployment benefit … the PEA could have had an even higher impact on unemployment reduction if there had been less focus on long …