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Optimal Taxation and Social Insurance with Endogenous Private Insurance

In: Income Taxation, Trans-Atlantic Public Economics Seminar (TAPES)

  • Raj Chetty
  • Emmanuel Saez

This paper characterizes the welfare gains from redistributive taxation and social insurance in an environment where the private sector provides partial insurance. We analyze stylized models in which adverse selection, pre-existing information, or imperfect optimization in private insurance markets create a role for government intervention. We derive simple formulas that map reduced-form empirical estimates into quantitative predictions for optimal tax and social insurance policy. Applications to unemployment and health insurance show that taking private market insurance into account matters significantly for optimal benefit levels given existing empirical estimates of the key parameters.

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This chapter was published in:
  • Roger Gordon & Thomas Piketty, 2010. "Income Taxation, Trans-Atlantic Public Economics Seminar (TAPES)," NBER Books, National Bureau of Economic Research, Inc, number gord08-1.
  • This item is provided by National Bureau of Economic Research, Inc in its series NBER Chapters with number 12118.
    Handle: RePEc:nbr:nberch:12118
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