Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/18367
Authors: 
Netzer, Nick
Scheuer, Florian
Year of Publication: 
2005
Series/Report no.: 
DIW Discussion Papers 516
Abstract: 
We examine optimal taxation and social insurance if insurance markets are imperfect. This requires the development of a theory of labor supply under uncertainty. We show that the case for social insurance is not generally reinforced by adverse selection in insurance markets as social insurance will have welfare-decreasing effects on the labor market. Furthermore, positive and normative implications are highly sensitive to the insurance market equilibrium concept. While for the Rothschild-Stiglitz case social insurance at least alleviates the inefficiency of underinsurance, with a Wilson pooling equilibrium this inefficiency might even be worsened by social insurance. This sheds new light on the question whether social insurance is an appropriate means of redistribution in the presence of an optimally chosen tax schedule.
Subjects: 
Redistributive Taxation
Social Insurance
Adverse Selection
Precautionary Labor
JEL: 
H50
H23
H21
J22
D81
Document Type: 
Working Paper

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