Working Paper: NBER ID: w14403
Authors: Raj Chetty; Emmanuel Saez
Abstract: This paper characterizes the welfare gains from redistributive taxation and social insurance in an environment where the private sector provides partial insurance. We analyze stylized models in which adverse selection, pre-existing information, or imperfect optimization in private insurance markets create a role for government intervention. We derive simple formulas that map reduced-form empirical estimates into quantitative predictions for optimal tax and social insurance policy. Applications to unemployment and health insurance show that taking private market insurance into account matters significantly for optimal benefit levels given existing empirical estimates of the key parameters.
Keywords: Optimal Taxation; Social Insurance; Private Insurance; Welfare Gains
JEL Codes: D6; H0
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| government intervention (O25) | welfare gains (D69) |
| private insurance (G52) | optimal level of social insurance (H55) |
| government intervention (O25) | welfare (I38) |
| private insurance (G52) | optimal tax rate (H21) |
| informal private insurance (G52) | optimal government benefit levels (H53) |
| interaction between private and public insurance (I13) | welfare implications of government intervention (H53) |