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Fiscal Policy and Management in East Asia$
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Takatoshi Ito and Andrew K. Rose

Print publication date: 2007

Print ISBN-13: 9780226386812

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226387062.001.0001

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Income Risk and the Benefits of Social Insurance

Income Risk and the Benefits of Social Insurance

Evidence from Indonesia and the United States

(p.99) 4 Income Risk and the Benefits of Social Insurance
Fiscal Policy and Management in East Asia

Raj Chetty

Adam Looney

University of Chicago Press

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

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