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| Author: | Bovenberg, L. Birch Sorensen, P. |
| Title: | Optimal social insurance with linear income taxation |
| Journal: | Scandinavian Journal of Economics
2009 : VOL. 111:2, p. 251-275 |
| Index terms: | disability insurance income tax labour supply moral hazard |
| Freeterms: | redistribution |
| Language: | eng |
| Abstract: | Optimal social insurance aimed at insuring disability risk in the presence of linear income taxation is studied here. Optimal disability insurance benefits rise with previous earnings. Optimal insurance is incomplete even though disability risks are exogenous and verifiable so that moral hazard in disability insurance is absent. Imperfect insurance is optimal because it encourages workers to insure themselves against disability by working and saving more, thereby alleviating the distortionary impact of redistributive income tax on labour supply and savings. |
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