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Insurance Taxation and Insurance Fraud

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  • M. Martin Boyer

Abstract

It is common practice in the United States to impose a sales tax on insurance premiums. Insurance benefits are not taxed, and it is typically argued that they should not be taxed because they compensate for a loss. In this paper I present a case where the taxation of insurance benefits is preferable to the taxation of premiums. When insurance fraud is present—in the form of ex post moral hazard—a tax on insurance premiums increases the number of fraudulent claims in the economy, whereas a tax on insurance benefits may reduce fraud. More importantly, however, policyholders are made better off with a benefit tax than with a premium tax.

Suggested Citation

  • M. Martin Boyer, 2000. "Insurance Taxation and Insurance Fraud," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 2(1), pages 101-134, January.
    • Handle: RePEc:bla:jpbect:v:2:y:2000:i:1:p:101-134
    DOI: 10.1111/1097-3923.00031
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    Cited by:

    1. M. Boyer, 2003. "Contracting under ex post moral hazard and non-commitment," Review of Economic Design, Springer;Society for Economic Design, vol. 8(1), pages 1-38, August.
    2. Dionne, Georges & Gagne, Robert, 2002. "Replacement Cost Endorsement and Opportunistic Fraud in Automobile Insurance," Journal of Risk and Uncertainty, Springer, vol. 24(3), pages 213-230, May.
    3. M. Martin Boyer & Pierre-Thomas Léger, 2001. "Inflation as a Strategic Response," CIRANO Working Papers 2001s-26, CIRANO.
    4. M. Martin Boyer, 2004. "Overcompensation as a Partial Solution to Commitment and Renegotiation Problems: The Case of Ex Post Moral Hazard," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 71(4), pages 559-582, December.
    5. Wu, T.C. Michael & Yang, C.C., 2012. "The welfare effect of income tax deductions for losses as insurance: Insured- versus insurer-sided adverse selection," Economic Modelling, Elsevier, vol. 29(6), pages 2641-2645.
    6. M. Martin Boyer, 2001. "Project Financing when the Principal Cannot Commit," CIRANO Working Papers 2001s-29, CIRANO.
    7. Tsaur-Chin Michael Wu & Chih-Ta Yen & Che-Chiang Huang & Jin-Li Hu, 2023. "Social Insurance Under Fraud And Redistributive Taxation," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 68(02), pages 467-483.

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