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Can public income insurance through progressive income taxation improve the allocation of risk in an economy where private risk sharing is incomplete? The answer depends crucially on the fundamental friction that limits private risk sharing in the first place. If risk sharing is limited because insurance markets are missing for model-exogenous reasons (as in ) publicly provided risk sharing improves on the allocation of risk. If instead private insurance markets exist but their use isdoi:10.3386/w15582 fatcat:lthx2nvntvdw7gk7yge6e6tizm