Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/25541 
Year of Publication: 
2008
Series/Report no.: 
CFS Working Paper No. 2008/06
Publisher: 
Goethe University Frankfurt, Center for Financial Studies (CFS), Frankfurt a. M.
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: 
Document Type: 
Working Paper

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