TITLE
"Relative Effects of Premium Loading and Tax Deductions on
the Demand for Insurance," Journal
of Insurance Issues, Joseph G. Eisenhauer, Spring
2002, Vol. 25, No. 1, pp. 47-62. Entire
article in Acrobat format.
ABSTRACT
This paper derives reduced-form equations for estimating the relative effects of
premium loading and income tax deductions on the demand for insurance. In
the absence of loading, tax deductions would not affect the equilibrium in the
market for individually purchased health insurance. With loading, the
proportion of uninsured medical losses due to tax deductibility is equal to the
tax rate, assuming constant absolute risk aversion; the proportion is between 40
and 86 percent in the casualty insurance market, and between 30 and 70 percent
in the theft insurance market. The effects of tax deductions are greater
under decreasing absolute risk aversion.
[Keywords: premium loading, taxation, health insurance, property insurance]
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