NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Impact of State Taxes on Self-Insurance

Bin Ke, Kathy Petroni, Douglas A. Shackelford

NBER Working Paper No. 7453
Issued in December 1999
NBER Program(s):Public Economics

This paper assesses whether insurers' state taxes reduce purchases of property-casualty coverage. Tests are conducted using state aggregates of insurer-level data from publicly-available, annual accounting reports for 1993, 1994, and 1995. A positive relation between self-insurance and state taxes is detected, consistent with consumers opting to self-insure rather than bear the incidence of higher insurer taxes. The primary empirical estimates imply that a 1 percent increase in the state premium tax rate reduces non-automobile insured losses by 0.18 percent to 0.28 percent. These elasticities suggest that for the mean state, a standard deviation increase in the state tax rate (0.5 percent) would lower insured losses by approximately $140 million or 7.5 percent of current coverage. As expected, tax effects vary with the elasticity of demand. When demand is largely inelastic, e.g., automobile liability coverage, taxes do not affect self-insurance.

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Document Object Identifier (DOI): 10.3386/w7453

Published: Ke, Bin, Kathy R. Petroni and Douglas A. Shackelford. "The Impact Of State Taxes On Self-Insurance," Journal of Accounting and Economics, 2000, v30(1,Aug), 99-122. citation courtesy of

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