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CFS Working Paper Series, Universität Frankfurt a. M. >
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http://hdl.handle.net/10419/25541
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| Title: | | Evidence on the insurance effect of marginal income taxes  |
| 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 |
| Document Type: | | Working Paper |
| Appears in Collections: | | CFS Working Paper Series, Universität Frankfurt a. M.
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