Redistribution and Social Insurance
- (pp. 359-86)
Abstract
We study optimal redistribution and insurance in a life-cycle economy with private idiosyncratic shocks. We characterize Pareto optima, show the forces determining optimal labor distortions, and derive closed form expressions for their limiting behavior. The labor distortions for high-productivity shocks are determined by the labor elasticity and the higher moments of the shock process; the labor distortions for low-productivity shocks are determined by the autocorrelation of the shock process, redistributive objectives, and past distortions. In a model calibrated using newly available estimates of idiosyncratic shocks, the labor distortions are U-shaped and the savings distortions generally increase in current earnings. (JEL D82, D91, H21, H23, I38, J22, J24)Citation
Golosov, Mikhail, Maxim Troshkin, and Aleh Tsyvinski. 2016. "Redistribution and Social Insurance." American Economic Review, 106 (2): 359-86. DOI: 10.1257/aer.20111550Additional Materials
JEL Classification
- D82 Asymmetric and Private Information; Mechanism Design
- D15 Intertemporal Household Choice; Life Cycle Models and Saving
- H21 Taxation and Subsidies: Efficiency; Optimal Taxation
- H23 Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- I38 Welfare, Well-Being, and Poverty: Government Programs; Provision and Effects of Welfare Programs
- J22 Time Allocation and Labor Supply
- J24 Human Capital; Skills; Occupational Choice; Labor Productivity