The Effectiveness of Government Debt and Transfers as Insurance

Martin Floden ()

No 377, Working Paper Series in Economics and Finance from Stockholm School of Economics

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 (search for similar items in EconPapers)
JEL-codes: E21 E62 H21 H60 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cdm, nep-dge, nep-ias and nep-pbe
Date: 2000-03-15
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Published in Journal of Monetary Economics, 2001, pages 81-108.

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Working Paper: The Effectiveness of Government Debt and Transfers as Insurance (2000)
Journal Article: The effectiveness of government debt and transfers as insurance (2001)
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:hastef:0377

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