Insurance, Redistribution, and the Inequality of Lifetime Income

Peter Haan, Daniel Kemptner and Victoria Prowse
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Peter Haan: DIW Berlin
Daniel Kemptner: DIW Berlin

No 188, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: Individuals vary considerably in how much they earn during their lifetimes. We study how the tax-and-transfer system offsets inequalities in lifetime earnings, which would otherwise translate into differences in living standards. Based on a life-cycle model, we find that redistribution by taxes and transfers offsets 54% of the inequality in lifetime earnings that is due to heterogeneous skill endowments. Meanwhile, taxes and transfers insure 45% of lifetime earnings risk. Taxes would provide more insurance if based on lifetime instead of annual earnings. Requiring wealthy individuals to repay social assistance received when younger would strengthen the insurance and redistributive functions of social assistance.

Keywords: lifetime earnings; lifetime income; tax-and-transfer system; taxation; unemployment insurance; disability benefits; social assistance; inequality; redistribution; insurance; endowments; risk; dynamic life-cycle models (search for similar items in EconPapers)
JEL-codes: D63 H23 I24 I38 J22 J31 (search for similar items in EconPapers)
Date: 2019-09-30
New Economics Papers: this item is included in nep-dge, nep-ias and nep-pbe
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Related works:
Working Paper: Insurance, Redistribution, and the Inequality of Lifetime Income (2023)
Working Paper: Insurance, redistribution, and the inequality of lifetime income (2023)
Working Paper: Insurance, Redistribution, and the Inequality of Lifetime Income (2023)
Working Paper: Insurance, Redistribution, and the Inequality of Lifetime Income (2018)
Working Paper: Insurance, Redistribution, and the Inequality of Lifetime Income (2017)
Working Paper: Insurance, Redistribution, and the Inequality of Lifetime Income (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:rco:dpaper:188

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