Redistribution and Social Insurance
Mikhail Golosov, Maxim Troshkin, Aleh Tsyvinski
American Economic Review · 2016 · Volume 106 · Issue 2
Abstract
We study optimal redistribution and insurance in a life-cycle 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. (JEL D82, D91, H21, H23, I38, J22, J24)
Keywords
Asymmetric and Private Information, Mechanism Design, Intertemporal Household Choice, Life Cycle Models and Saving, Taxation and Subsidies: Efficiency, Optimal Taxation, Taxation and Subsidies: Externalities, Redistributive Effects, Environmental Taxes and Subsidies, Welfare, Well-Being, and Poverty: Government Programs, Provision and Effects of Welfare Programs, Time Allocation and Labor Supply, Human Capital, Skills, Occupational Choice, Labor Productivity
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