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Explicit versus Implicit Income Insurance

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  • Kniesner, Thomas J
  • Ziliak, James P

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 source of consumption insurance, the 2001 income-tax reform legislation should have little effect on implicit consumption insurance. Copyright 2002 by Kluwer Academic Publishers

Suggested Citation

  • Kniesner, Thomas J & Ziliak, James P, 2002. "Explicit versus Implicit Income Insurance," Journal of Risk and Uncertainty, Springer, vol. 25(1), pages 5-20, July.
    • Handle: RePEc:kap:jrisku:v:25:y:2002:i:1:p:5-20
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    Cited by:

    1. Ziliak, James P. & Hardy, Bradley & Bollinger, Christopher, 2011. "Earnings volatility in America: Evidence from matched CPS," Labour Economics, Elsevier, vol. 18(6), pages 742-754.
    2. Konstantinos Angelopoulos & Spyridon Lazarakis & James Malley, 2019. "Cyclical income risk in Great Britain," Working Papers 2019_03, Business School - Economics, University of Glasgow.
    3. Scott Drewianka, 2010. "Cross‐Sectional Variation In Individuals' Earnings Instability," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 56(2), pages 291-326, June.
    4. Dolls, Mathias & Fuest, Clemens & Peichl, Andreas, 2012. "Automatic stabilizers and economic crisis: US vs. Europe," Journal of Public Economics, Elsevier, vol. 96(3), pages 279-294.
    5. Craig Gundersen & James Ziliak, 2004. "Poverty and macroeconomic performance across space, race, and family structure," Demography, Springer;Population Association of America (PAA), vol. 41(1), pages 61-86, February.
    6. James P. Ziliak & Craig Gundersen & David N. Figlio, 2003. "Food Stamp Caseloads over the Business Cycle," Southern Economic Journal, John Wiley & Sons, vol. 69(4), pages 903-919, April.
    7. Marianne Bitler & Hilary Hoynes & Elira Kuka, 2017. "Do In-Work Tax Credits Serve as a Safety Net?," Journal of Human Resources, University of Wisconsin Press, vol. 52(2), pages 319-350.
    8. Mathias Dolls & Clemens Fuest & Andreas Peichl & Christian Wittneben, 2022. "Fiscal Consolidation and Automatic Stabilization: New Results," IMF Economic Review, Palgrave Macmillan;International Monetary Fund, vol. 70(3), pages 420-450, September.
    9. Paula Garda & Volker Ziemann, 2014. "Economic Policies and Microeconomic Stability: A Literature Review and Some Empirics," OECD Economics Department Working Papers 1115, OECD Publishing.
    10. Konstantinos Angelopoulos & Spyridon Lazarakis & James Malley, 2019. "Cyclical income risk in Great Britain," Working Papers 2019-03, Business School - Economics, University of Glasgow.
    11. Jonathan Fisher & Bradley L. Hardy, 2023. "Money matters: consumption variability across the income distribution," Fiscal Studies, John Wiley & Sons, vol. 44(3), pages 275-298, September.
    12. Konstantinos Angelopoulos & Spyridon Lazarakis & James Malley, 2022. "Cyclical labour income risk in Great Britain," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 37(1), pages 116-130, January.

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