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Income Risk and the Benefits of Social Insurance: Evidence from Indonesia and the United States

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  • Raj Chetty
  • Adam Looney

Abstract

This paper examines the welfare consequences of social safety nets in developing economies relative to developed economies. Using panel surveys of households in Indonesia and the United States, we find that food consumption falls by approximately ten percent when individuals become unemployed in both countries. This finding suggests that introducing a formal social insurance program would have small benefits in terms of reducing consumption fluctuations in Indonesia. However, in contrast with households in the U.S., Indonesians use costly methods such as reducing human capital investment to smooth consumption. The primary benefit of social insurance in developing countries may therefore come not from consumption smoothing itself but from reducing the use of inefficient smoothing methods.

Suggested Citation

  • Raj Chetty & Adam Looney, 2005. "Income Risk and the Benefits of Social Insurance: Evidence from Indonesia and the United States," NBER Working Papers 11708, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:11708
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    References listed on IDEAS

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    Cited by:

    1. Jorge Andrés Tamayo & Jairo Núñez & Carlos Medina, 2013. "The Unemployment Subsidy Program in Colombia: An Assessment," IDB Publications (Working Papers) 4622, Inter-American Development Bank.
    2. Liu, Kai, 2016. "Insuring against health shocks: Health insurance and household choices," Journal of Health Economics, Elsevier, vol. 46(C), pages 16-32.
    3. Lawrence J. Christiano, 2011. "Comment on "Unemployment in an Estimated New Keynesian Model"," NBER Chapters,in: NBER Macroeconomics Annual 2011, Volume 26, pages 361-380 National Bureau of Economic Research, Inc.
    4. World Bank, 2006. "Making the New Indonesia Work for the Poor," World Bank Other Operational Studies 8172, The World Bank.
    5. Iwamoto, Yasushi & Kohara, Miki & Saito, Makoto, 2010. "On the consumption insurance effects of long-term care insurance in Japan: Evidence from micro-level household data," Journal of the Japanese and International Economies, Elsevier, vol. 24(1), pages 99-115, March.
    6. Pande, Rohini, 2008. "Understanding Political Corruption in Low Income Countries," Handbook of Development Economics, Elsevier.
    7. Christiano, Lawrence & Trabandt, Mathias & Walentin, Karl, 2010. "Involuntary unemployment and the business cycle," Working Paper Series 1202, European Central Bank.
    8. Christiano, Lawrence J. & Trabandt, Mathias & Walentin, Karl, 2010. "DSGE Models for Monetary Policy Analysis," Handbook of Monetary Economics,in: Benjamin M. Friedman & Michael Woodford (ed.), Handbook of Monetary Economics, edition 1, volume 3, chapter 7, pages 285-367 Elsevier.
    9. Chetty, Raj & Looney, Adam, 2006. "Consumption smoothing and the welfare consequences of social insurance in developing economies," Journal of Public Economics, Elsevier, vol. 90(12), pages 2351-2356, December.
    10. Jungho Kim & Alexia Prskawetz, 2010. "External Shocks, Household Consumption and Fertility in Indonesia," Population Research and Policy Review, Springer;Southern Demographic Association (SDA), vol. 29(4), pages 503-526, August.
    11. A. Devulder, 2014. "Heterogeneity, Unemployment Benefits and Voluntary Labor Force Participation," Working papers 493, Banque de France.
    12. Bruno Rocha, 2010. "At Different Speeds: Policy Complementarities and the Recovery from the Asian Crisis," Working Papers id:3294, eSocialSciences.

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    JEL classification:

    • H0 - Public Economics - - General

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