Seminar Papers, Institute for International Economic Studies, Stockholm University
Idiosyncratic Risk in the U.S. and Sweden: Is there a Role for Government Insurance?
() and Jesper Linde
Abstract: 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 parameterize the model by estimating productivity processe on
Swedish and U.S. data. The estimation results show that agents in the U.S.
are subject to more idiosynchratic risk than agents in sweden. Distortions
are significant but agents, particularly in the U.S., still like some
government insurance. As a result of this exercice, we can construct Laffer
curves for both countries. These peak when labor income tax rates are
around 60 percent.
Keywords: Idiosyncratic Risk; Inequality; Insurance; Redistribution; Laffer Curve; Distributions; (follow links to similar papers)
JEL-Codes: E20; H21; (follow links to similar papers)
36 pages, September 1, 1998
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