We model long-term care insurance in an optimal taxation framework. Every adult decides upon the amount and type of care he purchases for his dependent parent. We consider two alternatives: nursing-home care provided by the government, and home care paid by the child with some lump-sum subsidy by the government. The only source of information asymmetry is the government's inability to observe the degree of altruism of the adult child for his/her parent. Further tax collection entails some social costs. In such a second-best setting, we show that the quality of institutional care has to be kept relatively low and that compared to altruistic children, nonaltruistic ones enjoy a high level of consumption.
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Article provided by Mohr Siebeck, Tübingen in its journal FinanzArchiv.
Find related papers by JEL classification: D64 - Microeconomics - - Welfare Economics - - - Altruism H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
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