POLICY UNCERTAINTY,ELECTORAL SECURITIES,AND REDISTRIBUTION*

This article investigates how uncertainty about the adoption of a redistribution policy affects political support for redistribution when individuals can trade policy‐contingent securities in the stock market. In equilibrium the support for redistribution is smaller than where no “policy‐insurance market” is available. This implies that in economies with well‐developed financial markets redistribution decreases with the level of participation in these markets and with income inequality. Furthermore, the existence of a policy‐insurance market may lead to a less equal distribution of income than where no insurance is available even if a majority of individuals are redistributing resources through private transfers.     

Crowding out and crowding in: When does redistribution improve risk-sharing in limited commitment economies?

When the risk of default constrains financial contracts, public insurance policies can significantly affect private risk-sharing. This is because by changing income expectations and volatility, redistribution changes the attractiveness of default and thus endogenous borrowing constraints. Extending results by Krueger and Perri (2011) [8], this paper analyses the conditions under which redistribution can improve private insurance by making default less attractive to the income-rich, whose income it reduces. I first explain why public redistribution typically crowds out private insurance in the two-income economy, and identify the role of income persistence and saving after default. Second, I show how, in endowment economies with three income states or more and in economies with capital, redistributive taxes can improve, or “crowd in”, private consumption insurance. Finally, in a quantitative exercise using a realistic income process calibrated to US micro-data, moderate redistribution crowds in private insurance with production but not in an endowment economy.     

Private,Social, and Self‐Insurance for Long‐Term Care in the Presence of Family Help

We study the political determination of the level of social long‐term care insurance when voters can top up with private insurance, saving and family help. Agents differ in income, probability of becoming dependent and of receiving family help, and amount of family help received. Social insurance redistributes across income and risk levels, while private insurance is actuarially fair. The income‐to‐dependency probability ratio of agents determines whether they prefer social or private insurance. Family support crowds out the demand for both social and, especially, private insurance, as strong prospects of family help drive the demand for private insurance to zero. The availability of private insurance decreases the demand for social insurance but need not decrease its majority‐chosen level. A majority of voters would oppose banning private insurance.     

Optimal Income Taxation with Risky Earnings: A Synthesis

We study optimal nonlinear income taxation when earnings can differ because of both ability and luck, so the income tax has both a redistributive role and an insurance role. A substantial literature on optimal redistribution in the absence of risk has evolved since Mirrlees's original contribution. The literature on the income tax as a social insurance device is more limited. It has largely assumed that households are ex ante identical so unequal earnings are due to risk alone. We provide a general treatment of the optimal income tax under risk when households differ in ability. We characterize optimal marginal tax rates and interpret them in terms of redistribution, insurance, and incentive effects. The case of ex ante identical households and the no‐risk case with heterogeneous abilities come out as special cases.     

Anti-insurance: Analysing the Health Insurance System in Australia

This paper develops a model to analyse the Australian health insurance system when individuals differ in their health risk and this risk is private information. In Australia private insurance both duplicates and supplements public insurance. We show that, absent any other interventions, this results in implicit transfers of wealth from those most at risk of adverse health to those least at risk. At the social level, these transfers represent a mean preserving spread of income, creating social risk and lowering welfare – what we call anti-insurance. The recently introduced rebate on private health insurance can improve welfare by alleviating anti-insurance.     

Positive arithmetic of the welfare state

This paper argues that social security enjoys wider political support than other welfare programs because: (i) retirees constitute the most homogeneous voting group, and (ii) the intragenerational redistribution component of social security induces low-income young to support this system. In a dynamically efficient overlapping generation economy with earnings heterogeneity, we show that, for sufficient income inequality and enough elderly in the population, a welfare system composed of a within-cohort redistribution scheme and an unfunded social security system represents the political equilibrium of a two-dimensional majoritarian election. Social security is sustained by retirees and low-income young; while intragenerational redistribution by low-income young. Unlike unidimensional voting model, our model suggests that to assess how changes in inequality affect the welfare state, the income distribution should be decomposed by age groups.     

Income-contingent loan with personal insurance policy: an empirical assessment using Spanish data

We propose an Income Contingent Loan that defers the payment of university fees and charges a fixed proportion of gross income for 30 years or until the debt is written off. Under these conditions, some participants in the scheme will have insufficient income to fully repay their loan balances. The deficit will be covered by the taxpayer, who ultimately bears the risk of investing in higher education. We then propose to transfer this risk to the student by adding a mandatory personal insurance policy to the individual loan. We calculate the premium required for the system to break even in Spain when everybody pays the insurance cost. Alternatively, the payment of the premium can be deferred, adding it to total debt. Then, some participants in the scheme will have insufficient income to even pay the insurance cost, and the premium needs to be increased to maintain the sustainability of the program. Although these mechanisms imply redistribution towards borrowers who end up being low earners, we show that middle-income individuals contribute a higher proportion of their incomes to covering for those unable to repay. To provide the system with more internal progressivity, we propose to impose a minimum period of repayment.     

The extension of social security coverage in developing countries

We study the dynamic general equilibrium effects of introducing a social pension program to elderly informal sector workers in developing countries who lack formal risk sharing mechanisms against income and longevity risks. To this end, we formulate a stochastic dynamic general equilibrium model that incorporates defining features of developing countries: a large informal sector, private transfers as an informal safety net, and a non-universal social security system. We find that the extension of retirement benefits to informal sector workers results in efficiency losses due to adverse effects on capital accumulation and the allocation of resources across formal and informal sectors. Despite these losses recipients of social pensions experience welfare gains as the positive insurance effects attributed to the extension of a social insurance system dominate. The welfare gains crucially depend on the skill distribution, private intra-family transfers and the specific tax used to finance the expansion.     

Entrepreneurship, Economic Risks, and Risk Insurance in the Welfare State: Results with OECD Data 1978–93

We find evidence in the OECD cross-country data to support the Knightian view that non-diversifiable economic risks shape equilibrium entrepreneurship in an occupational choice model. Differential social insurance of entrepreneurial and labor risk is found to be statistically significant and detrimental to entrepreneurship. The crowding-out effect of public production of private goods on entrepreneurship dominates the crowding-in effect of public production of public goods in the OECD data. Weak evidence is found for the proposition that the rate of entrepreneurship is related to the degree of income inequality and to the union power in the economy. The results also suggest that in countries with low GDP per capita ratio, self-employment is high.     

Social Security Reform with Heterogeneous Agents

This paper analyzes the quantitative role of idiosyncratic uncertainty in an economy in which rational agents vote on hypothetical social security reforms. We find that the role of a pay-as-you-go social security system as a partial insurance and redistribution device significantly reduces political support for a transition to an economy with a fully funded system. We conclude that the status quo bias in favor of an unfunded social security system is stronger in economies in which agents of similar age differ significantly with respect to labor earnings and wealth because of idiosyncratic income uncertainty. Journal of Economic Literature Classification Numbers: H55, E62, H3     

The political sustainability of a basic income scheme and social health insurance

This paper studies within a two‐stage framework the political economy of a basic income (BI) and social health insurance (SHI) scheme. At the constitutional stage, individuals decide whether these schemes are implemented behind a veil of ignorance about their future income and risk type. This decision is made in anticipation of the outcome at the second stage in which individuals vote on the payroll tax to finance a BI and the contribution rate of a SHI scheme provided these schemes have been implemented. Depending on the amount of healthcare expenditure and the inequalities in income and risk, only a social health insurance scheme is implemented at the constitutional stage.     

WHO SUPPORTS REDISTRIBUTION?*

Using an original data set, we investigated the determinants of individual preferences over income redistribution in Japan. Although income level is negatively correlated with support for redistribution, it does not explain much; there are other important factors that relate to dynamics and uncertainty, such as income risk. Even after controlling for income, both risk‐averse individuals and those who expect to be unemployed in the future favour greater redistribution. Interaction of ageing and mobility prove important. The relatively poor elderly, who presumably have few prospects of upward mobility, strongly support greater redistribution, whereas younger people are less sympathetic to such a policy.     

Political ideology and the intragenerational prospect of upward mobility

We re-examine the effect of prospects of upward mobility (POUM) on the support for redistribution. Unlike previous studies, we analyse this relation in an intragenerational context and consider the moderating effect of political ideology through which mobility expectations affect redistributive preferences. We find that the POUM effect is conditional on political preferences. That is, we find that only for right-wing individuals expected upward income mobility negatively affects support for redistribution. Left-wing individuals prefer redistribution, regardless of expected upward income movements.     

Public versus private risk sharing

Can public income insurance through progressive income taxation improve the allocation of risk in an economy where private risk sharing is incomplete? The answer depends crucially on the fundamental friction that limits private risk sharing in the first place. If risk sharing is limited because insurance markets are missing for model-exogenous reasons (as in Bewley (1986) [8]) publicly provided risk sharing improves on the allocation of risk. If instead private insurance markets exist but their use is limited by limited enforcement (as in Kehoe and Levine (1993) [23]) then the provision of public insurance interacts with equilibrium private insurance, as, by providing risk sharing, the government affects the value of exclusion from private insurance markets and thus the enforcement mechanism of these contracts. We characterize consumption allocations in an economy with limited enforcement and a continuum of agents facing plausible income risk and tax systems with various degrees of progressivity (public risk sharing). We provide conditions under which more publicly provided insurance actually reduces total insurance for agents (excess crowding-out), or under which more public insurance increases total insurance (partial crowding-out).     

IDIOSYNCRATIC AND AGGREGATE RISKS,INEQUALITY AND GROWTH

The paper disaggregates productivity shocks at a firm level into idiosyncratic and aggregate risks, and studies their impacts on inequality, growth and welfare. It develops a growth model with human capital and incomplete insurance and credit markets that provides a closed‐form solution for income inequality dynamics. We find that uninsured idiosyncratic risks are the most important determinants of inequality, growth and welfare. They are the source of nondegenerate wealth distribution. A lower weight of these shocks leads to lower steady‐state inequality, higher growth and welfare. A redistribution of income that serves as social insurance against such risks increases welfare and decreases inequality. But, it also decreases growth by distorting individual consumption and saving decisions.     

Integration of unemployment insurance with retirement insurance

This paper analyzes a social insurance system that integrates unemployment insurance with a pension program, allowing workers to borrow against their future wage income to finance consumption during an unemployment episode and thus improving search incentives while reducing the risks arising from unemployment. This paper identifies the conditions under which integration improves welfare and the factors which determine the optimal degree of integration. We show that when the duration of unemployment is very short compared to the period of employment or retirement, the optimal system involves exclusive reliance on pension-funded self-insurance. This system imposes a negligible risk burden for workers while avoiding attenuating search incentives. We also argue that joint integration of several social insurance programs with a pension program through an individual account is desirable unless the risks are perfectly correlated with each other.     

Indicator targeting in a political economy: Leakier can be better

In LDCs, policymakers sometimes cannot observe income among the poor. One oft-proposed approach to redistribution is indicator targeting: targeting transfers on corrrelations between income and “indicators” like geography, gender, or occupation. We build a simple model in which maximizing poverty reduction from a fixed budget requires indicator targeting. Because insurance motives drive political support for redistribution, the budget depends on the degree of targeting. When middle income agents receive targeted transfers sufficiently rarely, introducing targeting reduces poor agents’ welfare. The converse holds when middle income agents receive targeted transfers sufficiently rarely, i.e. if the redis-tributive bucket is sufficiently leaky.     

我国基本养老保险扩面的收入分配效应研究

文章基于一般均衡分析框架,通过构建“统账结合”制基本养老保险的异质性跨期交叠一般均衡动态模型,引入国发〔2005〕38号文的主要内容,利用政策仿真、参数估值和敏感性检验等方法,重点研究了养老保险制度覆盖面扩展的收入分配和再分配效应,并进行了理论推导和实证测算。结果发现：（1）我国基本养老保险扩面具有明显的收入分配和再分配效应,且再分配效应是累进的,发生了从城镇企业职工为代表的高收入者向以灵活就业人员和农民工为代表的低收入者的收入转移;（2）个人账户发挥了平滑作用,有利于改善不同类型劳动者终生的收入分配,但不利于收入再分配的改善;（3）社会统筹账户具有较强的收入再分配效应,有利于改善不同类型劳动者的收入再分配,缩小收入差距。参数敏感性检验表明结论是稳健的。因此,进一步优化社会统筹账户有利于减小收入不平等。     

Does forced solidarity hamper investment in small and micro enterprises?

Summary: Previous research has shown that small firms in poor countries achieve high marginal returns to capital but show low reinvestment rates. We investigate whether transfers motivated by risk sharing and forced redistribution can explain this pattern and may therefore hamper private sector development. The idea is that the more redistribution distorts the fairness of insurance, the more potentially successful entrepreneurs may be hindered to undertake profitable investments. The empirical results based on a sample of small firms operating in Burkina Faso support the main propositions of this paper.     

Social Insurance and Redistribution with Moral Hazard and Adverse Selection*

Rochet (1991) showed that with distortionary income taxes, social insurance is a desirable redistributive device when risk and ability are negatively correlated. This finding is re‐examined when ex post moral hazard and adverse selection are included, and under different informational assumptions. Individuals can take actions influencing the size of the loss in the event of accident (or ill health). Social insurance can be supplemented by private insurance, but private insurance markets are affected by both adverse selection and moral hazard. We study how equity and efficiency considerations should be traded off in choosing the optimal coverage of social insurance when those features are introduced. The case for social insurance is strongest when the government is well informed about household productivity.