Idiosyncratic Risk in the U.S. and Sweden: Is there a Role for Government Insurance?
1998 (English)Report (Other academic)
We examine the effects of government redistribution schemes in an economy where agents are subject to uninsurable, individual specific productivity risk. In particular, we consider the trade-off between positive insurance effects and negative distortions on labor supply. We parametize the models by estimating productivity processes on Swedish and U.S. data. The estimation results show that agents in the U.S. are subject to more idiosyncratic risk than agents in Sweden. Distortions are significant but agents, particularly in the U.S., still like some government insruance. As a result of this exercise, we can construct Laffer curves for both countries. These peak when labor income tax rates are around 60 percent.
Place, publisher, year, edition, pages
Stockholm: IIES , 1998. , 36 p.
Seminar Paper / Institute for International Economic Studies, Stockholm University, ISSN 0347-8769 ; 654
Idiosyncratic risk, Inequality, Insurance, Redistribution, Laffer curve, Distributions
IdentifiersURN: urn:nbn:se:su:diva-41061OAI: oai:DiVA.org:su-41061DiVA: diva2:328071