"Redistribution and Social Insurance", American Economic Review, 106(2): 359-386 Abstract: We study optimal redistribution and insurance in a lifecycle economy with
private idiosyncratic shocks. We characterize Pareto optima, show the forces determining
optimal labor distortions, and derive closed form expressions for their
limiting behavior. The labor distortions for high-productivity shocks are determined
by the labor elasticity and the higher moments of the shock process; the labor
distortions for low-productivity shocks are determined by the autocorrelation of the
shock process, redistributive objectives, and past distortions. In a model calibrated
using newly available estimates of idiosyncratic shocks, the labor distortions are
U-shaped and the savings distortions generally increase in current earnings. Paper: PDF (copyright restrictions may apply) |
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