Several papers have documented that US consumers can not fully insure themselves against all their idiosyncratic risks, but little is understood about which mechanisms provide insurance. We investigate whether, as some suggest, progressive taxes provide additional insurance. The methodology distinguishes insurance from redistribution, and can by applied to testing any potential insurance mechanism. Using repeated cross-sections from the US consumer expenditure survey (CEX), we relate changes in consumption inequality to several measures of tax progressivity. Identification exploits the variation in taxes both across states and over time. Our results suggest, under weak assumptions, that progressive taxes do not induce insurance, while stronger assumptions quantify this effect.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number
66.