We find that the Friedman rule is not optimal with real government transfers and distortionary taxation. As transfers cannot be taxed, a positive nominal net interest rate is the indirect way to tax the additional income derived from transfers. This result holds for heterogeneous agents,...

A major benefit of health insurance coverage is that it protects the insured from unexpected medical costs that may devastate their personal finances. In this paper, we use detailed credit report information on a large panel of individuals to examine the effect of a major health care reform in...