IDEAS home Printed from https://ideas.repec.org/a/sae/pubfin/v26y1998i1p53-66.html
   My bibliography  Save this article

Insurance Premium Taxes: a Lump-Sum Proposal

Author

Listed:
  • Michael R. Powers

    (Temple University)

  • Larry Y. Tzeng

    (National Taiwan University)

Abstract

All insurance companies in the United States are assessed state premium taxes based on percentages of written premiums. In this article, the authors argue that the proportional premium tax system is unfair to higher risk insureds because they must pay greater state premium taxes, even though they do not cause the state greater expenses. As an alternative, the authors propose a lump-sum premium tax system in which all insureds pay a fixed dollar tax that may or may not differ by risk classification. Although lump-sum taxes are widely recognized as Pareto dominant with respect to proportional taxes, the potential advantages of lump-sum taxes have not been explored in the premium tax context, in which random outcomes and the heterogeneity of risks play important roles. The authors compare the potential advantages of lump-sum premium taxes with their potential disadvantages in terms of administrative expenses, moral hazard, and adverse selection.

Suggested Citation

  • Michael R. Powers & Larry Y. Tzeng, 1998. "Insurance Premium Taxes: a Lump-Sum Proposal," Public Finance Review, , vol. 26(1), pages 53-66, January.
    • Handle: RePEc:sae:pubfin:v:26:y:1998:i:1:p:53-66
    DOI: 10.1177/109114219802600103
    as

    Download full text from publisher

    File URL: https://journals.sagepub.com/doi/10.1177/109114219802600103
    Download Restriction: no
    File URL: https://libkey.io/10.1177/109114219802600103?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Schanbel, Jacques A & Roumi, Ebrahim, 1990. "A Contingent Claims Analysis of Partial Loss Offset Taxation and Risk-Taking," Public Finance = Finances publiques, , vol. 45(2), pages 304-320.
    2. J. E. Stiglitz, 1969. "The Effects of Income, Wealth, and Capital Gains Taxation on Risk-Taking," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 83(2), pages 263-283.
    3. Evsey D. Domar & Richard A. Musgrave, 1944. "Proportional Income Taxation and Risk-Taking," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 58(3), pages 388-422.
    4. Bennett, John, 1987. "The Second-Best Lump-Sum Taxation of Observable Characteristics," Public Finance = Finances publiques, , vol. 42(2), pages 227-235.
    5. Mark V. Pauly, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 88(1), pages 44-62.
    6. MOSSIN, Jan, 1968. "Aspects of rational insurance purchasing," LIDAM Reprints CORE 23, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. Michael Rothschild & Joseph Stiglitz, 1976. "Equilibrium in Competitive Insurance Markets: An Essay on the Economics of Imperfect Information," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 90(4), pages 629-649.
    8. Kaplow, Louis, 1991. "Incentives and Government Relief for Risk," Journal of Risk and Uncertainty, Springer, vol. 4(2), pages 167-175, April.
    9. Wilson, Charles, 1977. "A model of insurance markets with incomplete information," Journal of Economic Theory, Elsevier, vol. 16(2), pages 167-207, December.
    10. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    11. Steven Shavell, 1979. "On Moral Hazard and Insurance," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 93(4), pages 541-562.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dionne, Georges & Harrington, Scott, 2017. "Insurance and Insurance Markets," Working Papers 17-2, HEC Montreal, Canada Research Chair in Risk Management.
    2. Henri Loubergé, 1998. "Risk and Insurance Economics 25 Years After," The Geneva Papers on Risk and Insurance - Issues and Practice, Palgrave Macmillan;The Geneva Association, vol. 23(4), pages 540-567, October.
    3. Karolin Becker & Peter Zweifel, 2005. "Cost Sharing in Health Insurance: An Instrument for Risk Selection?," SOI - Working Papers 0513, Socioeconomic Institute - University of Zurich.
    4. Raj Chetty & Amy Finkelstein, 2012. "Social Insurance: Connecting Theory to Data," NBER Working Papers 18433, National Bureau of Economic Research, Inc.
    5. Georges Dionne & Casey G. Rothschild, 2011. "Risk Classification in Insurance Contracting," Cahiers de recherche 1137, CIRPEE.
    6. Silvia Platoni, 2010. "Asymmetric Information and Annuities," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(3), pages 501-532, June.
    7. Dionne, Georges & Michaud, Pierre-Carl & Pinquet, Jean, 2013. "A review of recent theoretical and empirical analyses of asymmetric information in road safety and automobile insurance," Research in Transportation Economics, Elsevier, vol. 43(1), pages 85-97.
    8. repec:ipf:psejou:v:42:y:2018:i:42:p:45-65 is not listed on IDEAS
    9. Raj Chetty & Emmanuel Saez, 2010. "Optimal Taxation and Social Insurance with Endogenous Private Insurance," NBER Chapters, in: Income Taxation, Trans-Atlantic Public Economics Seminar (TAPES), pages 85-114, National Bureau of Economic Research, Inc.
    10. Barr, Nicholas, 1992. "Economic theory and the welfare state : a survey and interpretation," LSE Research Online Documents on Economics 279, London School of Economics and Political Science, LSE Library.
    11. Bum J. Kim & Harris Schlesinger, 2005. "Adverse Selection in an Insurance Market With Government‐Guaranteed Subsistence Levels," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 72(1), pages 61-75, March.
    12. Dionne, Georges, 2012. "The empirical measure of information problems with emphasis on insurance fraud and dynamic data," Working Papers 12-10, HEC Montreal, Canada Research Chair in Risk Management.
    13. Pavel A. Yakovlev & Christina M. Orr-Magulick, 2018. "On the road again: traffic fatalities and auto insurance minimums," Public Sector Economics, Institute of Public Finance, vol. 42(1), pages 45-65.
    14. Nell, Martin, 2001. "Managed Claims: Zur Notwendigkeit einer vertikalen Integration von Versicherungs- und Reparaturleistungen," Working Papers on Risk and Insurance 2, University of Hamburg, Institute for Risk and Insurance.
    15. Stewart, Jay, 1994. "The Welfare Implications of Moral Hazard and Adverse Selection in Competitive Insurance Markets," Economic Inquiry, Western Economic Association International, vol. 32(2), pages 193-208, April.
    16. Dionne, G. & Doherty, N., 1991. "Adverse Selection In Insurance Markets: A Selective Survey," Cahiers de recherche 9105, Centre interuniversitaire de recherche en économie quantitative, CIREQ.
    17. Stiglitz, Joseph E., 2018. "Pareto efficient taxation and expenditures: Pre- and re-distribution," Journal of Public Economics, Elsevier, vol. 162(C), pages 101-119.
    18. Daniel McFadden & Carlos Noton & Pau Olivella, "undated". "Remedies for Sick Insurance," Working Papers 620, Barcelona School of Economics.
    19. Joshua S. Gans & Stephen P. King, 2003. "Anti‐insurance: Analysing the Health Insurance System in Australia," The Economic Record, The Economic Society of Australia, vol. 79(247), pages 473-486, December.
    20. Peter Arcidiacono & Esteban M. Aucejo & Hanming Fang & Kenneth I. Spenner, 2011. "Does affirmative action lead to mismatch? A new test and evidence," Quantitative Economics, Econometric Society, vol. 2(3), pages 303-333, November.
    21. Hanming Fang & Michael P. Keane & Dan Silverman, 2008. "Sources of Advantageous Selection: Evidence from the Medigap Insurance Market," Journal of Political Economy, University of Chicago Press, vol. 116(2), pages 303-350, April.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sae:pubfin:v:26:y:1998:i:1:p:53-66. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: SAGE Publications (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.