Idiosynchratic Risk in the U.S. and Sweden: Is there a Role for Government Insurance?

Martin Floden () and Jesper Lindé

No 654, Seminar Papers from Stockholm University, Institute for International Economic Studies

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 (search for similar items in EconPapers)
JEL-codes: E20 H21 (search for similar items in EconPapers)
Date: 1998-09-01
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Related works:
Working Paper: Idiosyncratic Risk in the U.S. and Sweden: Is there a Role for Government Insurance? (1998)
Journal Article: Idiosyncratic Risk in the United States and Sweden: Is There a Role for Government Insurance?
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