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Optimal Social Insurance with Linear Income Taxation

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Author Info
Lans Bovenberg
Peter Birch Sørensen
Abstract

We study optimal social insurance aimed at insuring disability risk in the presence of linear income taxation. Optimal disability insurance benefits rise with previous earnings. Optimal insurance is incomplete even though disability risks are exogenous and verifiable so that moral hazard in disability insurance is absent. Imperfect insurance is optimal because it encourages workers to insure themselves against disability by working and saving more, thereby alleviating the distortionary impact of the redistributive income tax on labor supply and savings. Copyright © The editors of the "Scandinavian Journal of Economics" 2009. .

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-9442.2009.01563.x
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Article provided by Blackwell Publishing in its journal Scandinavian Journal of Economics.

Volume (Year): 111 (2009)
Issue (Month): 2 (06)
Pages: 251-275
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Handle: RePEc:bla:scandj:v:111:y:2009:i:2:p:251-275

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This page was last updated on 2009-12-19.

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