The Effectiveness of Consumption Taxes and Transfers as Insurance against Idiosyncratic Risk
Tomoyuki Nakajima () and
No 933, KIER Working Papers from Kyoto University, Institute of Economic Research
We quantitatively evaluate the effectiveness of a consumption tax and transfer program as insurance against idiosyncratic earnings risk. Our framework is a heterogeneous-agent, incomplete-market model with idiosyncratic wage risk and indivisible labor. The model is calibrated to the U.S. economy. We find a weak insurance effect of the transfer program. Extending the transfer system from the current scale raises consumption uncertainty, which increases aggregate savings and reduces the interest rate. Furthermore, consumption inequality shows a small decrease.
Keywords: Consumption taxes; Transfers; Risk sharing; Consumption inequality; Indivisible labor; Incomplete markets (search for similar items in EconPapers)
JEL-codes: E62 D31 J22 C68 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-pub
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Journal Article: The Effectiveness of Consumption Taxes and Transfers as Insurance Against Idiosyncratic Risk (2020)
Working Paper: The Effectiveness of Consumption Taxes and Transfers as Insurance against Idiosyncratic Risk (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:kyo:wpaper:933
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