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Idiosynchratic Risk in the U.S. and Sweden: Is there a Role for Government Insurance?

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Author Info
Flodén, Martin () (Institute for International Economic Studies, Stockholm University)
Linde, Jesper () (Handelshögskolan)

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Abstract

We examine the effects of government redistribution schemes in an economy where agents are subject to uninsurable, individual specific productivity risk. In particular, we consider the trade-off between positive insurance effects and negative distortions on labor supply. We parameterize the model by estimating productivity processe on Swedish and U.S. data. The estimation results show that agents in the U.S. are subject to more idiosynchratic risk than agents in sweden. Distortions are significant but agents, particularly in the U.S., still like some government insurance. As a result of this exercice, we can construct Laffer curves for both countries. These peak when labor income tax rates are around 60 percent.

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Publisher Info
Paper provided by Stockholm University, Institute for International Economic Studies in its series Seminar Papers with number 654.

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Length: 36 pages
Date of creation: 01 Sep 1998
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Handle: RePEc:hhs:iiessp:0654

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Related research
Keywords: Idiosyncratic Risk; Inequality; Insurance; Redistribution; Laffer Curve; Distributions;

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Find related papers by JEL classification:
E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

References listed on IDEAS
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Full references

Cited by:
(explanations, 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.)

  1. Marta González-Torrabadella & Josep Pijoan-Mas, 2006. "Flat tax reforms: a general equilibrium evaluation for Spain," Investigaciones Economicas, Fundación SEPI, vol. 30(2), pages 317-351, May. [Downloadable!]
  2. Shinichi Nishiyama & Kent Smetters, 2006. "Social Security Privatization with Income-Mortality Correlation," Working Papers wp140, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
  3. Josep Pijoan-Mas, 2006. "Precautionary Savings or Working Longer Hours?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 326-352, April. [Downloadable!] (restricted)
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  4. Kartik B. Athreya & Andrea L. Waddle, 2007. "Implications of some alternatives to capital income taxation," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 31-55. [Downloadable!]
  5. Shinichi Nishiyama & Kent Smetters, 2005. "Does Social Security Privatization Produce Efficiency Gains?," Working Papers wp106, University of Michigan, Michigan Retirement Research Center. [Downloadable!]
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  6. Daniel R. Carroll & Eric R. Young, 2009. "A note on sunspots with heterogeneous agents," Working Paper 0906, Federal Reserve Bank of Cleveland. [Downloadable!]
  7. Mathias Trabandt & Harald Uhlig, 2006. "How Far Are We From The Slippery Slope? The Laffer Curve Revisited," SFB 649 Discussion Papers SFB649DP2006-023, Sonderforschungsbereich 649, Humboldt University, Berlin, Germany. [Downloadable!]
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  8. Per Krusell & Toshihiko Mukoyama & Richard Rogerson & Aysegul Sahin, 2009. "Aggregate Labor Market Outcomes: The Role of Choice and Chance," NBER Working Papers 15252, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  9. Xavier Ragot, 2008. "The case for a financial approach to money demand," PSE Working Papers 2008-56, PSE (Ecole normale supérieure). [Downloadable!]
  10. Niku Määttänen & Panu Poutvaara, 2006. "Should Old-age Benefits Be Earnings-tested," Discussion Papers 1062, The Research Institute of the Finnish Economy. [Downloadable!]
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  11. Ferreira, Pedro Cavalcanti Gomes & Santos, Marcelo Rodrigues dos, 2008. "The Effect of Social Security, Demography and Technology on Retirement," Economics Working Papers (Ensaios Economicos da EPGE) 683, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
  12. Kartik B. Athreya, 2008. "Credit access, labor supply, and consumer welfare," Economic Quarterly, Federal Reserve Bank of Richmond, issue Win, pages 17-44. [Downloadable!]
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