Income Risk and the Benefits of Social Insurance

Raj Chetty and Adam Looney

in Fiscal Policy and Management in East Asia

Published by University of Chicago Press

Published in print November 2007 | ISBN: 9780226386812
Published online February 2013 | e-ISBN: 9780226387062 | DOI:
Income Risk and the Benefits of Social Insurance

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Social safety nets in developing countries are far smaller than in developed economies. In 1996, the average expenditure on social insurance as a fraction of GDP in countries with below-median per capita income was 6.8 percent; the corresponding figure in above-median countries was 18.5 percent. This chapter explores the welfare consequences of social insurance by comparing the effects of shocks on consumption and other behaviors in developing and developed countries, focusing on the experience of Indonesia and the United States. It provides empirical estimates of elasticities that are relevant in assessing the welfare consequences of social insurance in low-income economies. The chapter first describes existing social safety nets around the world and then compares the effects of unemployment on consumption in Indonesia and the United States empirically. It also presents evidence on the cost of consumption smoothing methods used in Indonesia by analyzing the methods used by households to mitigate the income loss associated with unemployment.

Keywords: social safety nets; Indonesia; United States; welfare; social insurance; unemployment; income loss; consumption; developing countries; low-income economies

Chapter.  12846 words.  Illustrated.

Subjects: Business and Management

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