Boadway, Robin Leite-Monteiro, Manuel Marchand, Maurice Pestieau, Pierre
Year of Publication:
Queen's Economics Department Working Paper No. 1004
This paper studies optimal linear income taxation and redistributive social insurance when the former has the traditional labor distortion and the latter generates both ex ante and ex post moral hazard. Private insurance is available and individuals differ in labor productivity and in loss probability. We show that government intervention in insurance markets is welfare-improving, and social insurance is generally desirable when there is a negative correlation between labor productivity and loss probability.