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The Effectiveness of Government Debt and Transfers as Insurance

  • Martin Floden

    (Stockholm School of Economics)

Government debt and redistributive taxation can help people to smooth consumption when facing uninsurable individual specific risk. I examine the effects that variations in public debt and transfers have on risk sharing, efficiency, and the distribution of resources. I find that risk sharing can be improved significantly by both debt and transfers, but that debt has adverse effects on equity. When used in isolation, debt will enhance welfare if transfers are lower than optimal. However, the beneficial effects of public debt vanish if transfers are used optimally.

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Paper provided by Econometric Society in its series Econometric Society World Congress 2000 Contributed Papers with number 1013.

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Date of creation: 01 Aug 2000
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Handle: RePEc:ecm:wc2000:1013
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