Redistribution as Social Insurance and Capital Market Integration
In this paper we claim that enhanced economic integration can call for an increase in redistribution among workers. When individuals are risk averse and no human capital insurance is available, the share of workers who choose to invest in "specific" human capital will be inefficiently low. Redistribution among workers plays the role of the missing insurance market by making the investment in the specific skills more attractive. Capital market integration has two different effects. On the one hand it makes labour income taxation more distortionary, therefore reducing the optimal tax rate on labour. On the other hand, it increases the variance of specific labour wage and widens the scope for risk protection of specific human capital through the redistribution implemented by a labour income tax. We show that the insurance effect of redistribution can be stronger than the distortionary effect, so that the optimal tax rate on labour income can increase when capital markets become more integrated.
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.:
- Sinn, Hans-Werner, 1996.
"Social Insurance, Incentives and Risk Taking,"
Munich Reprints in Economics
19834, University of Munich, Department of Economics.
- GABSZEWICZ, J. J. & van YPERSELE, T., .
"Social protection and political competition,"
CORE Discussion Papers RP
1230, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Hans-Werner Sinn, 1994.
"A Theory of the Welfare State,"
NBER Working Papers
4856, National Bureau of Economic Research, Inc.
- Torben M. Andersen & Niels Haldrup & Jan Rose Sørensen, 2000. "Labour market implications of EU product market integration," Economic Policy, CEPR;CES;MSH, vol. 15(30), pages 105-134, 04.
- D'Antoni, Massimo & Pagano, Ugo, 2002. "National cultures and social protection as alternative insurance devices," Structural Change and Economic Dynamics, Elsevier, vol. 13(4), pages 367-386, December.
- David E. Wildasin, 2005. "Fiscal Competition," Working Papers 2005-05, University of Kentucky, Institute for Federalism and Intergovernmental Relations.
- Barr, Nicholas, 1992. "Economic Theory and the Welfare State: A Survey and Interpretation," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 741-803, June.
When requesting a correction, please mention this item's handle: RePEc:kap:itaxpf:v:11:y:2004:i:4:p:531-547. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Sonal Shukla)or (Christopher F. Baum)
If references are entirely missing, you can add them using this form.