A Note on Taxation as Social Insurance for Uncertain Labor Income

9 Pages Posted: 24 Aug 2010 Last revised: 27 Jul 2014

See all articles by Louis Kaplow

Louis Kaplow

Harvard Law School; National Bureau of Economic Research (NBER)

Date Written: May 1991

Abstract

Various authors, notably Eaton and Rosen (1980a) and Varian (1980), have proposed that income taxation may be justified to some extent on the ground that it serves as social insurance against uncertainties in labor income. They assume that private insurance is unavailable. primarily because of moral hazard, and demonstrate that some taxation is efficient because the benefits of mitigating risk exceed incentive costs. This note suggests that private insurance should be considered explicitly in examining this question. Moral hazard problems limiting private insurance coverage are not alleviated by government insurance. Moreover, in the presence of moral hazard, government insurance, through labor income taxation or otherwise, may be an inefficient policy because private insurance decisions are distorted. More traditional justifications for redistributive taxation are unaffected by this argument.

Suggested Citation

Kaplow, Louis, A Note on Taxation as Social Insurance for Uncertain Labor Income (May 1991). NBER Working Paper No. w3708. Available at SSRN: https://ssrn.com/abstract=1663533

Louis Kaplow (Contact Author)

Harvard Law School ( email )

1575 Massachusetts Avenue
Cambridge, MA 02138
United States
617-495-4101 (Phone)
617-496-4880 (Fax)

HOME PAGE: http://www.law.harvard.edu/faculty/directory/facdir.php?id=32&show=bibliography

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
12
Abstract Views
310
PlumX Metrics