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Redistribution and Social Insurance

Listed author(s):
  • Mikhail Golosov
  • Maxim Troshkin
  • Aleh Tsyvinski

We study optimal redistribution and insurance in a life-cycle economy with private idiosyncratic shocks. We characterize Pareto optima, show the forces determining optimal labor distortions, and derive closed form expressions for their limiting behavior. The labor distortions for high-productivity shocks are determined by the labor elasticity and the higher moments of the shock process; the labor distortions for low-productivity shocks are determined by the autocorrelation of the shock process, redistributive objectives, and past distortions. In a model calibrated using newly available estimates of idiosyncratic shocks, the labor distortions are U-shaped and the savings distortions generally increase in current earnings. (JEL D82, D91, H21, H23, I38, J22, J24)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 106 (2016)
Issue (Month): 2 (February)
Pages: 359-386

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Handle: RePEc:aea:aecrev:v:106:y:2016:i:2:p:359-86
Note: DOI: 10.1257/aer.20111550
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