Optimal taxation with endogenous insurance markets

Mikhail Golosov, Aleh Tsyvinski

Research output: Contribution to journalArticle

59 Scopus citations

Abstract

We study optimal taxation in an economy where the skills of agents evolve stochastically over time and are private information and in which agents can trade unobservably in competitive markets. We show that competitive equilibria are constrained inefficient. The government can improve welfare by distorting capital accumulation with the sign of the distortion depending on the nature of the skill process. Finally, we show that private insurance provision responds endogenously to policy, that government insurance tends to crowd out private insurance, and, in a calibrated example, that this crowding out effect is large.

Original languageEnglish (US)
Pages (from-to)487-534
Number of pages48
JournalQuarterly Journal of Economics
Volume122
Issue number2
DOIs
StatePublished - May 2007

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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