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Explicit versus Implicit Income Insurance

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  • Kniesner, Thomas J
  • Ziliak, James P

Abstract

By supplementing income explicitly through payments or implicitly through taxes collected, income-based taxes and transfers make disposable income less variable. Because disposable income determines consumption, policies that smooth disposable income also create welfare improving consumption insurance. With data from the Panel Study of Income Dynamics we find that annual consumption variation is reduced by almost 20 percent due to explicit and implicit income smoothing. Consumption insurance is as important economically as private health or automobile insurance. Although taxes have become an increasingly important source of consumption insurance, the 2001 income-tax reform legislation should have little effect on implicit consumption insurance. Copyright 2002 by Kluwer Academic Publishers

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Bibliographic Info

Article provided by Springer in its journal Journal of Risk and Uncertainty.

Volume (Year): 25 (2002)
Issue (Month): 1 (July)
Pages: 5-20

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Handle: RePEc:kap:jrisku:v:25:y:2002:i:1:p:5-20

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Web page: http://www.springerlink.com/link.asp?id=100299

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Cited by:
  1. Dolls, Mathias & Fuest, Clemens & Peichl, Andreas, 2009. "Automatic Stabilizers and Economic Crisis: US vs. Europe," IZA Discussion Papers 4310, Institute for the Study of Labor (IZA).
  2. Craig Gundersen & James Ziliak, 2004. "Poverty and macroeconomic performance across space, race, and family structure," Demography, Springer, vol. 41(1), pages 61-86, February.
  3. Ziliak, James P. & Hardy, Bradley & Bollinger, Christopher, 2011. "Earnings volatility in America: Evidence from matched CPS," Labour Economics, Elsevier, vol. 18(6), pages 742-754.

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