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Title: Evidence on the insurance effect of redistributive taxation
Authors: Grant, C
Koulovatianos, C
Michaelides, A
Padula, M
Keywords: Redistributive taxation;Insurance;Tax;Consumption
Issue Date: 2010
Publisher: MIT Press
Citation: The Review of Economics and Statistics, 92(4), 965 - 973, 2010
Abstract: If households face uninsurable idiosyncratic earnings risk, theory predicts that redistributive tax and transfer systems have both an insurance and a distortionary effect. Exploiting the substantial variation of tax and transfer systems across U.S. states and over time, we investigate the necessary traces of these two effects in the data: that state-level measures of redistributive taxation should correlate negatively with the standard deviation and the mean of the within-state consumption distribution. We find that the first correlation is robust, supporting strongly the presence of an insurance effect. The distortionary effect can also be detected in the data, but it is less precisely estimated.
Description: Copyright @ 2010 by the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
ISSN: 0034-6535
Appears in Collections:Economics and Finance
Dept of Economics and Finance Research Papers

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