Income Risk and the Benefits of Social Insurance: Evidence from Indonesia and the United States

Raj Chetty and W. Looney

No 11708, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper examines the welfare consequences of social safety nets in developing economies relative to developed economies. Using panel surveys of households in Indonesia and the United States, we find that food consumption falls by approximately ten percent when individuals become unemployed in both countries. This finding suggests that introducing a formal social insurance program would have small benefits in terms of reducing consumption fluctuations in Indonesia. However, in contrast with households in the U.S., Indonesians use costly methods such as reducing human capital investment to smooth consumption. The primary benefit of social insurance in developing countries may therefore come not from consumption smoothing itself but from reducing the use of inefficient smoothing methods.

JEL-codes: H0 (search for similar items in EconPapers)
Date: 2005-10
New Economics Papers: this item is included in nep-dev, nep-ias and nep-pbe
Note: PE
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Published as Ito, T. and A. Rose. Fiscal Policy and Management in East Asia: NBER East Asia Seminar on Economics 16. Chicago: University of Chicago Press, 2007.
Published as Income Risk and the Benefits of Social Insurance: Evidence from Indonesia and the United States , Raj Chetty, Adam Looney. in Fiscal Policy and Management in East Asia , Ito and Rose. 2007

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