Explicit versus implicit income insurance

Thomas J. Kniesner, James P. Ziliak

Research output: Contribution to journalReview articlepeer-review

18 Scopus citations

Abstract

By supplementing income explicitly through payments or implicitly through taxes collected, income-based taxes and transfers make disposable income less variable. Because disposable income determines consumption, policies that smooth disposable income also create welfare improving consumption insurance. With data from the Panel Study of Income Dynamics we find that annual consumption variation is reduced by almost 20 percent due to explicit and implicit income smoothing. Consumption insurance is as important economically as private health or automobile insurance. Although taxes have become an increasingly important source of consumption insurance, the 2001 income-tax reform legislation should have little effect on implicit consumption insurance.

Original languageEnglish
Pages (from-to)5-20
Number of pages16
JournalJournal of Risk and Uncertainty
Volume25
Issue number1
DOIs
StatePublished - 2002

Keywords

  • Consumption
  • Implicit insurance
  • Income taxes
  • PSID
  • Transfer payments

ASJC Scopus subject areas

  • Accounting
  • Finance
  • Economics and Econometrics

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