Social Insurance, Incentives, and Risk Taking
From the perspective of parents, redistributive taxation can be seen as social insurance for their children, for which no private alternative exists. Because private insurance comes too late during a person's life, it cannot cover the same risks as social insurance. Empirically, 85% of social insurance covers risks for which no private insurance would have been available. Redistributive taxation can be efficiency enhancing, because it creates safety and because it stimulates income generating risk taking. However, it also brings about detrimental moral hazard effects. Both the enhancement of risk taking and the moral hazard effects tend to increase the inequality in the economy, and, under constant returns to risk taking, this increase is likely to be strong enough even to make the net-of-tax income distribution more unequal. Optimal redistributive taxation will either imply that the pie becomes bigger when there is less inequality in pre-tax incomes or that more redistribution creates more post-tax inequality. The welfare state will encounter severe risks when free migration of people, goods, and factors of production becomes possible. Basing redistributive taxation on a nationality principle may help overcome some of these risks.
|Date of creation:||Nov 1995|
|Date of revision:|
|Publication status:||published as International Tax and Public Finance 3, (1996), pp. 259-280.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
Web page: http://www.nber.org
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Christiansen, V., 1990. "Subsidization Of Risky Investment Under Income Taxation And Moral Hazard," The Warwick Economics Research Paper Series (TWERPS) 357, University of Warwick, Department of Economics.
- Boadway, Robin W & Wildasin, David E, 1990.
"Optimal Tax-Subsidy Policies for Industrial Adjustment to Uncertain Shocks,"
Oxford Economic Papers,
Oxford University Press, vol. 42(1), pages 105-34, January.
- BOADWAY, Robin W. & WILDASIN, David E., . "Optimal tax-subsidy policies for industrial adjustment to uncertain shocks," CORE Discussion Papers RP 889, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Hans-Werner Sinn, 1994.
"A Theory of the Welfare State,"
NBER Working Papers
4856, National Bureau of Economic Research, Inc.
- Alberto Alesina & Dani Rodrik, 1994. "Distributive Politics and Economic Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 465-490.
- Louis Kaplow, 1991. "A Note on Taxation as Social Insurance for Uncertain Labor Income," NBER Working Papers 3708, National Bureau of Economic Research, Inc.
- Jeremy I. Bulow & Lawrence H. Summers, 1982.
"The Taxation of Risky Assets,"
NBER Working Papers
0897, National Bureau of Economic Research, Inc.
- Mirrlees, J. A., 1995. "Private risk and public action: The economics of the welfare state," European Economic Review, Elsevier, vol. 39(3-4), pages 383-397, April.
- Kai A. Konrad, 1991.
"Risk Taking and Taxation in Complete Capital Markets,"
The Geneva Risk and Insurance Review,
Palgrave Macmillan, vol. 16(2), pages 167-177, December.
- Konrad, K.A., 1991. "Risk Taking And Taxation In Complete Capital Markets," Papers 90-91-20, California Irvine - School of Social Sciences.
- Persson, T. & Tabellini, G., 1993.
"Is Inequality Harmful for Growth,"
537, Stockholm - International Economic Studies.
- Alberto Alesina & Dani Rodrik, 1991.
"Distributive Politics and Economic Growth,"
NBER Working Papers
3668, National Bureau of Economic Research, Inc.
- Kanbur, S M, 1979. "Of Risk Taking and the Personal Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(4), pages 769-97, August.
- Barr, Nicholas, 1992. "Economic Theory and the Welfare State: A Survey and Interpretation," Journal of Economic Literature, American Economic Association, vol. 30(2), pages 741-803, June.
- Steven Shavell, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, Oxford University Press, vol. 93(4), pages 541-562.
- John C. Harsanyi, 1953. "Cardinal Utility in Welfare Economics and in the Theory of Risk-taking," Journal of Political Economy, University of Chicago Press, vol. 61, pages 434.
- Konrad, Kai A., 1991. "Risk taking and taxation in complete capital markets," EconStor Research Reports 112676, ZBW - German National Library of Economics.
- Roger H. Gordon, 1985. "Taxation of Corporate Capital Income: Tax Revenues Versus Tax Distortions," The Quarterly Journal of Economics, Oxford University Press, vol. 100(1), pages 1-27.
- Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
- Ahsan, Syed M., 1976. "Taxation in a two-period temporal model of consumption and portfolio allocation," Journal of Public Economics, Elsevier, vol. 5(3-4), pages 337-352.
- Kaplow, Louis, 1992. "Income Tax Deductions for Losses as Insurance," American Economic Review, American Economic Association, vol. 82(4), pages 1013-17, September.
- Sinn, Hans-Werner, 1986. "Risiko als Produktionsfaktor," Munich Reprints in Economics 19879, University of Munich, Department of Economics.
When requesting a correction, please mention this item's handle: RePEc:nbr:nberwo:5335. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.