Article ID | Journal | Published Year | Pages | File Type |
---|---|---|---|---|
5054137 | Economic Modelling | 2014 | 7 Pages |
Abstract
Kaplow (1992) shows that allowing income tax deductions for losses as partial insurance is undesirable in the presence of private insurance markets. This paper revisits the issue by considering a model that integrates Kaplow (1992) with Stiglitz (1982). We address the following question: Whether the income tax deduction for losses is part of an optimal income tax system. We show that introducing the income tax deduction for uninsured losses to complement an optimal nonlinear labor income tax will Pareto-improve welfare, provided that: (i) information is incomplete for the government as in the Stiglitz framework, and (ii) the premium for private insurance is unfair or moral hazard is present.
Keywords
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
T.C. Michael Wu, C.C. Yang,