Abstract
This paper studies public provision of long term care insurance in a world in which family assistance is (i) uncertain and (ii) endogenous depending on the time parents spend raising their children. Public benefits will be paid in case of disability but cannot be combined with self-insurance or family aid. The benefits are provided equally to all recipients and financed by a proportional payroll tax. The paper shows that tax distortions imply that full insurance is undesirable. It characterizes the optimal tax and identifies the elements that determine its size. Of crucial importance are the extent of under-insurance, the effect of the tax on the probability of altruism, the distortionary effect of the tax, and, with wage heterogeneity, the covariance between the social mar- ginal utility of lifetime income and (i) earnings (positive effect) and (ii) the probability of altruism default (negative effect).
JEL codes
- H2: Taxation, Subsidies, and Revenue
- H5: National Government Expenditures and Related Policies
Replaces
Helmuth Cremer, Firouz Gahvari, and Pierre Pestieau, “Endogenous altruism, redistribution, and long term care”, IDEI Working Paper, n. 768, March 2013.
Helmuth Cremer, Firouz Gahvari, and Pierre Pestieau, “Endogenous altruism, redistribution, and long term care”, TSE Working Paper, n. 13-386, March 2013.
Reference
Helmuth Cremer, Firouz Gahvari, and Pierre Pestieau, “Endogenous altruism, redistribution, and long term care”, The B. E. Journal of Economic Analysis & Policy (Advances), vol. 14, n. 2, July 2013, pp. 499–524.
See also
Published in
The B. E. Journal of Economic Analysis & Policy (Advances), vol. 14, n. 2, July 2013, pp. 499–524