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Optimal Taxation and Social Insurance with Endogenous Private Insurance

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  • Raj Chetty
  • Emmanuel Saez

Abstract

This paper characterizes the welfare gains from redistributive taxation and social insurance in an environment where the private sector provides partial insurance. We analyze stylized models in which adverse selection, pre-existing information, or imperfect optimization in private insurance markets create a role for government intervention. We derive simple formulas that map reduced-form empirical estimates into quantitative predictions for optimal tax and social insurance policy. Applications to unemployment and health insurance show that taking private market insurance into account matters significantly for optimal benefit levels given existing empirical estimates of the key parameters.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14403.

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Date of creation: Oct 2008
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Publication status: published as Raj Chetty & Emmanuel Saez, 2010. "Optimal Taxation and Social Insurance with Endogenous Private Insurance," American Economic Journal: Economic Policy, American Economic Association, vol. 2(2), pages 85-114, May.
Handle: RePEc:nbr:nberwo:14403

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Citations

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Cited by:
  1. Taskin, Temel, 2012. "Does unemployment insurance crowd out home production?," MPRA Paper 37583, University Library of Munich, Germany.
  2. Bertola, Giuseppe & Koeniger, Winfried, 2013. "Hidden Insurance in a Moral Hazard Economy," IZA Discussion Papers 7806, Institute for the Study of Labor (IZA).
  3. Giuseppe Bertola & Anna Lo Prete, 2013. "Finance, governments, and trade," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 149(2), pages 273-294, June.
  4. Hsu, Minchung & Yang, C.C., 2013. "Optimal linear and two-bracket income taxes with idiosyncratic earnings risk," Journal of Public Economics, Elsevier, vol. 105(C), pages 58-71.
  5. Goulão, Catarina, 2014. "Voluntary Public Health Insurance," TSE Working Papers 14-488, Toulouse School of Economics (TSE).
  6. Salvador Ortigueira & Nawid Siassi, 2011. "How important is intra-household risk sharing for savings and labor supply?," Economics Working Papers we1132, Universidad Carlos III, Departamento de Economía.
  7. Mark Cullen & Liran Einav & Amy Finkelstein, 2009. "Estimating Welfare in Insurance Markets Using Variation in Prices," Discussion Papers 08-046, Stanford Institute for Economic Policy Research.
  8. Craig, Steven G. & Hoang, Edward C., 2011. "State government response to income fluctuations: Consumption, insurance, and capital expenditures," Regional Science and Urban Economics, Elsevier, vol. 41(4), pages 343-351, July.
  9. Nick Netzer & Florian Scheuer, 2009. "Competitive Screening in Insurance Markets with Endogenous Wealth Heterogeneity," SOI - Working Papers 0907, Socioeconomic Institute - University of Zurich, revised Jun 2009.
  10. Casey B. Mulligan, 2009. "Means-Tested Mortgage Modification: Homes Saved or Income Destroyed?," NBER Working Papers 15281, National Bureau of Economic Research, Inc.
  11. Raj Chetty, 2008. "Moral Hazard vs. Liquidity and Optimal Unemployment Insurance," NBER Working Papers 13967, National Bureau of Economic Research, Inc.
  12. Raj Chetty & Amy Finkelstein, 2012. "Social Insurance: Connecting Theory to Data," NBER Working Papers 18433, National Bureau of Economic Research, Inc.
  13. Steven Craig & Wided Hemissi & Satadru Mukherjee & Bent E. Sorensen, 2012. "How Do Politicians Save? Buffer Stock Management of Unemployment Insurance Finance," Working Papers 201302845, Department of Economics, University of Houston.
  14. Jean-Baptiste Michau, 2012. "Optimal labor market policy with search frictions and risk-averse workers," Working Papers hal-00757173, HAL.

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