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An Exploratory Comparison Of Income Risk In Germany And The United States

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  • Edward J. Bird

Abstract

Using longitudinal data, 1 estimate the impact of redistribution on the welfare cost of income risk in Germany and the United States. The estimates account fully for behavior because individuals in each country have responded optimally to that country's policy. The results indicate that the welfare cost of income risk is 5.4 percent of disposable income in Germany, 8.5 percent in the U.S. Redistribution has reduced these risks from their pre‐tax, pre‐transfer levels by 43 percent in Germany, 21 percent in the U.S. The political importance of income security is evident in both countries, as risk relief often eliminates the net burden of redistributive taxes among middle‐class households. The conclusions are robust across several models of income expectations.

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  • Edward J. Bird, 1995. "An Exploratory Comparison Of Income Risk In Germany And The United States," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 41(4), pages 405-426, December.
    • Handle: RePEc:bla:revinw:v:41:y:1995:i:4:p:405-426
    DOI: 10.1111/j.1475-4991.1995.tb00135.x
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    Cited by:

    1. Vodopivec, Milan & Raju, Dhushyanth, 2002. "Income support systems for the unemployed : issues and options," Social Protection Discussion Papers and Notes 25529, The World Bank.
    2. Edward J. Bird, 1999. "The Effect of Redistribution of Income Risk: Estimates from the PACO Database," Vierteljahrshefte zur Wirtschaftsforschung / Quarterly Journal of Economic Research, DIW Berlin, German Institute for Economic Research, vol. 68(2), pages 164-170.
    3. Bird, Edward J., 2001. "Does the welfare state induce risk-taking?," Journal of Public Economics, Elsevier, vol. 80(3), pages 357-383, June.
    4. Weikard Hans-Peter, 2004. "Poverty Measurement Under Income Risk / Armutsmessung bei Einkommensrisiken," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 224(3), pages 337-350, June.
    5. Milan Vodopivec, 2004. "Income Support for the Unemployed : Issues and Options," World Bank Publications - Books, The World Bank Group, number 14922, December.
    6. Björklund, Anders & Palme, Mårten, 1997. "Income Redistribution within the Life Cycle versus between Individuals: Empirical Evidence Using Swedish Panel Data," SSE/EFI Working Paper Series in Economics and Finance 197, Stockholm School of Economics.
    7. Edward Castronova, 2002. "To Aid, Insurance, Transfer, or Control: What Drives the Welfare State?," Discussion Papers of DIW Berlin 281, DIW Berlin, German Institute for Economic Research.
    8. Meng, Xin, 2003. "Unemployment, consumption smoothing, and precautionary saving in urban China," Journal of Comparative Economics, Elsevier, vol. 31(3), pages 465-485, September.
    9. Edward J. Bird, "undated". "Does the Welfare State Induce Risk Taking?," Wallis Working Papers WP11, University of Rochester - Wallis Institute of Political Economy.

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