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Idiosyncratic Risk in the United States and Sweden: Is There a Role for Government Insurance?

Author

Listed:
  • Martin Floden

    (Stockholm School of Economics)

  • Jesper Lindé

    (Sveriges Riksbank)

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 and saving. We parameterize the model by estimating productivity processes on Swedish and U.S. data. The estimation results show that agents in the United States are subject to more idiosyncratic risk than agents in Sweden. Although distortions are significant, the welfare benefits of government redistribution and insurance systems can be substantial. (Copyright: Elsevier)

Suggested Citation

  • Martin Floden & Jesper Lindé, 2001. "Idiosyncratic Risk in the United States and Sweden: Is There a Role for Government Insurance?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 4(2), pages 406-437, July.
  • Handle: RePEc:red:issued:v:4:y:2001:i:2:p:406-437
    DOI: 10.1006/redy.2000.0121
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    More about this item

    Keywords

    idiosyncratic risk; inequality; social insurance; redistribution; distributions;
    All these keywords.

    JEL classification:

    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation

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