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Relative Effects of Premium Loading and Tax Deductions on the Demand for Insurance


  • Joseph G. Eisenhauer


This paper derives reduced-form equations for estimating the relative effects of premium loading and income tax deductions on the demand for insurance. In the absence of loading, tax deductions would not affect the equilibrium in the market for individually purchased health insurance. With loading, the proportion of uninsured medical losses due to tax deductibility is equal to the tax rate, assuming constant absolute risk aversion; the proportion is between 40 and 86 percent in the casualty insurance market, and between 30 and 70 percent in the theft insurance market. The effects of tax deductions are greater under decreasing absolute risk aversion.

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  • Joseph G. Eisenhauer, 2002. "Relative Effects of Premium Loading and Tax Deductions on the Demand for Insurance," Journal of Insurance Issues, Western Risk and Insurance Association, vol. 25(1), pages 47-62.
  • Handle: RePEc:wri:journl:v:25:y:2002:i:1:p:47-62

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    Cited by:

    1. R.A. Somerville, 2004. "Insurance, Consumption, and Saving: A Dynamic Analysis in Continuous Time," American Economic Review, American Economic Association, vol. 94(4), pages 1130-1140, September.

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