The insurance value of state tax-and-transfer programs
AbstractThis paper estimates the total value that individuals derive from their state's tax-and-transfer program, and shows how this value varies by income. The paper decomposes this total value into two components: redistributive value, which is due to predictable changes in income (and family circumstances), and insurance value, which occurs when taxes and transfers compensate for unexpected income shocks. Our approach is a forward-looking one, where we examine income and transfers net of taxes over a 10-year period. We model state taxes (personal income taxes, the EITC, and sales taxes) and state means-tested transfers (AFDC/TANF and Medicaid/SCHIP). The calculations are made using the Panel Study of Income Dynamics and allow for analysis of the role of changes in tax-and-transfer programs, demographics, and income in the value of state net benefits over a period of more than 30years. We find that the redistributive value of state tax-and-transfer programs sharply declines with income, but that the insurance value is increasing in income. The resulting total value still declines with income, but not nearly as sharply as the redistributive value. Hence, the insurance value mitigates the incentives for mobility that would “undo” state redistributive spending.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Public Economics.
Volume (Year): 95 (2011)
Issue (Month): 11 ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/505578
Fiscal federalism; Redistribution; Tax-and-transfer programs;
Other versions of this item:
- Hilary W. Hoynes & Erzo F.P. Luttmer, 2010. "The Insurance Value of State Tax-and-Transfer Programs," NBER Working Papers 16280, National Bureau of Economic Research, Inc.
- H2 - Public Economics - - Taxation, Subsidies, and Revenue
- H75 - Public Economics - - State and Local Government; Intergovernmental Relations - - - State and Local Government: Health, Education, and Welfare
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Rebecca M. Blank, 2001.
"What Causes Public Assistance Caseloads to Grow?,"
Journal of Human Resources,
University of Wisconsin Press, vol. 36(1), pages 85-118.
- Rebecca M. Blank, 1997. "What Causes Public Assistance Caseloads to Grow?," NBER Working Papers 6343, National Bureau of Economic Research, Inc.
- Rebecca M. Blank, 2000. "What Causes Public Assistance Caseloads to Grow?," JCPR Working Papers 18, Northwestern University/University of Chicago Joint Center for Poverty Research.
- Hoynes, Hilary W. & Luttmer, Erzo F.P., 2012. "Reprint of: The insurance value of state tax-and-transfer programs," Journal of Public Economics, Elsevier, vol. 96(11), pages 1110-1128.
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