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The Wealth Effects Of Income Insurance

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  • Edward J. Bird
  • Paul A. Hagstrom

Abstract

Precautionary savings models suggest that wealth should rise with income risk. Risk is reduced by means‐tested transfers, however, which implies that transfer programs should discourage private wealth accumulation. We offer a comprehensive empirical assessment based on variation across states in the generosity of a number of programs, specifically unemployment insurance and means‐tested transfers (Aid to Families with Dependent Children and Food Stamps). We use monthly data on married couples from the Survey of Income and Program Participation (SIPP) to regress wealth on income, income risk, and various measures of transfer generosity. The results support the precaution‐ary savings model and reveal moderate negative wealth effects of both unemployment insurance and means‐tested transfers, with an elasticity of about −0.18.

Suggested Citation

  • Edward J. Bird & Paul A. Hagstrom, 1999. "The Wealth Effects Of Income Insurance," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(3), pages 339-352, September.
    • Handle: RePEc:bla:revinw:v:45:y:1999:i:3:p:339-352
    DOI: 10.1111/j.1475-4991.1999.tb00344.x
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    Cited by:

    1. Yann Algan & Arnaud Cheron & Jean-Olivier Hairault & Francois Langot, 2003. "Wealth Effect on Labor Market Transitions," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(1), pages 156-178, January.
    2. Vodopivec, Milan & Raju, Dhushyanth, 2002. "Income support systems for the unemployed : issues and options," Social Protection Discussion Papers and Notes 25529, The World Bank.
    3. Yavuz Arslan & Ahmet Degerli & Gazi Kabas, 2019. "Unintended Consequences of Unemployment Insurance Benefits: The Role of Banks," Swiss Finance Institute Research Paper Series 19-44, Swiss Finance Institute.
    4. Weikard Hans-Peter, 2004. "Poverty Measurement Under Income Risk / Armutsmessung bei Einkommensrisiken," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 224(3), pages 337-350, June.
    5. Milan Vodopivec, 2004. "Income Support for the Unemployed : Issues and Options," World Bank Publications - Books, The World Bank Group, number 14922.
    6. Edward J. Bird, "undated". "Does the Welfare State Induce Risk Taking?," Wallis Working Papers WP11, University of Rochester - Wallis Institute of Political Economy.
    7. Eric Levin & Robert Wright, 2001. "Unemployment insurance, moral hazard, and economic growth," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 7(4), pages 373-384, November.
    8. Bourdeau-Brien, Michael & Kryzanowski, Lawrence, 2020. "Natural disasters and risk aversion," Journal of Economic Behavior & Organization, Elsevier, vol. 177(C), pages 818-835.

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