Optimal Social Insurance with Linear Income Taxation

25 Pages Posted: 29 Apr 2009

See all articles by A. Lans Bovenberg

A. Lans Bovenberg

Tilburg University - Center for Economic Research (CentER); Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute)

Peter Birch Sørensen

University of Copenhagen - Department of Economics

Date Written: 2009-01

Abstract

We study optimal social insurance aimed at insuring disability risk in the presence of linear income taxation. Optimal disability insurance benefits rise with previous earnings. Optimal insurance is incomplete even though disability risks are exogenous and verifiable so that moral hazard in disability insurance is absent. Imperfect insurance is optimal because it encourages workers to insure themselves against disability by working and saving more, thereby alleviating the distortionary impact of the redistributive income tax on labor supply and savings.

Suggested Citation

Bovenberg, A. Lans and Birch Sørensen, Peter, Optimal Social Insurance with Linear Income Taxation (2009-01). Scandinavian Journal of Economics, Vol. 111, Issue 2, pp. 251-275, June 2009. Available at SSRN: https://ssrn.com/abstract=1396463 or http://dx.doi.org/10.1111/j.1467-9442.2009.01563.x

A. Lans Bovenberg (Contact Author)

Tilburg University - Center for Economic Research (CentER) ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands
+31 13 466 2912 (Phone)
+31 13 466 3066 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Peter Birch Sørensen

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
1
Abstract Views
250
PlumX Metrics