Labor market institutions and household consumption insurance within OECD countries

This paper tests empirically whether the effect of idiosyncratic income shocks on aggregate consumption depends on institutional features of national labour markets. The results show that, in a sample of 15 OECD countries, institutional heterogeneity is a significant determinant of the response of household consumption to country-specific income shocks. This is consistent with the idea that institutionally provided social insurance may help increase income stability when people differ in their ability to access financial markets and smooth consumption fluctuations.