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Title: COHESION, INSURANCE AND REDISTRIBUTION

Citation Type: Journal Article

Publication Year: 2007

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Abstract: Governments use redistributive policies to favor rel- atively unproductive economic sectors. Traditional economic wis- dom teaches that the government should instead buy out the agents in these sectors, and let them relocate to more productive sectors. We show that redistribution to a sector whose agents have highly correlated incomes generates an insurance value. Taking this insur- ance value into account, a buy-out is not sufficient to compensate the agents in the sector for relocating. In fact, it may be efficient for the government to sustain agents in an activity that, while less productive, is subject to correlated income shocks. US data sug- gests that indeed, sectors that receive transfers are subject to more correlated income shocks than others.

Url: http://www.its.caltech.edu/~fede/published/echenique-eguia-qjps.pdf

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Authors: Echenique, Federico

Periodical (Full): Quarterly Journal of Political Science

Issue: 4

Volume: 2

Pages: 287-305

Data Collections: IPUMS CPS

Topics: Population Data Science

Countries: United States