publication . Preprint . 2001

Explicit Versus Implicit Income Insurance

Thomas J. Kniesner; James P. Z‎iliak;
Open Access
  • Published: 01 Jul 2001
Abstract
October 2001 (Revised from July 2001). 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...

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