SSE/EFI Working Paper Series in Economics and Finance
No 377:
The Effectiveness of Government Debt and Transfers as Insurance
Martin Floden ()
Abstract: 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.
Keywords: redistributive taxation; public debt; idiosyncratic risk; fiscal policy; social insurance; welfare measures; (follow links to similar papers)
JEL-Codes: E21; E62; H21; H60; (follow links to similar papers)
36 pages, March 15, 2000
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- This paper is published as:
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Floden, Martin, (2001), 'The Effectiveness of Government Debt and Transfers as Insurance', Journal of Monetary Economics, Vol. 48(1), pages 81-108
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