Why Does the Government Provide Tax Deductions for the Individual’s Net Losses?

This paper shows that providing tax deductions for individuals ’ net losses could be optimal for the government when (1) the government’s aggregated utility function is more risk-averse than that of the representative individual, or (2) the insured is overly optimistic with regard to the loss probability. The results of this paper could be further applied to explain why a government provides supplementary public insurance or government relief