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Title:Evidence on the insurance effect of marginal income taxes PDF Logo
Authors:Grant, Charles
Koulovatianos, Christos
Michaelides, Alexander
Padula, Mario
Issue Date:2008
Series/Report no.:CFS Working Paper 2008/06
Abstract:Marginal income taxes may have an insurance effect by decreasing the effective fluctuations of after-tax individual income. By compressing the idiosyncratic component o personal income fluctuations, higher marginal taxes should be negatively correlated with the dispersion of consumption across households, a necessary implication of an insurance effect of taxation. Our study empirically examines this negative correlation, exploiting the ample variation of state taxes across US states. We show that taxes are negatively correlated with the consumption dispersion of the within-state distribution of non-durable consumption and that this correlation is robust.
Subjects:Undiversifiable Earnings Risk
Consumption Insurance
Tax Distortions
JEL:E21
H20
H31
Persistent Identifier of the first edition:urn:nbn:de:hebis:30-53239
Document Type:Working Paper
Appears in Collections:CFS Working Paper Series, Universität Frankfurt a. M.

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