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Optimal linear taxation under endogenous longevity

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  • Marie-Louise Leroux
  • Pierre Pestieau
  • Gregory Ponthiere

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Abstract

This paper studies the optimal linear tax-transfer policy in an economy where agents differ in productivity and in genetic background, and where longevity depends on health spending and genes. It is shown that, if agents internalize imperfectly the impact of genes and health spending on longevity, the utilitarian social optimum can be decentralized with type-specific redistributive lump sum transfers and Pigouvian taxes correcting for agents's myopia (leading to undersaving and underinvestment in health), and for their incapacity to perceive the effect of health spending on the resource constraint of the economy (causing overinvestment in health). The second-best problem is also examined under linear taxation instruments. Our main result is that it may be optimal to tax health spending, in particular under a complementarity of genes and health spending in the production of longevity.

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Bibliographic Info

Article provided by Springer in its journal Journal of Population Economics.

Volume (Year): 24 (2011)
Issue (Month): 1 (January)
Pages: 213-237

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Handle: RePEc:spr:jopoec:v:24:y:2011:i:1:p:213-237

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Related research

Keywords: Longevity; Myopia; Taxation; H21; I12; I18;

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References

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  1. CREMER, Helmuth & LOZACHMEUR, Jean-Marie & PESTIAU, Pierre, 2007. "Collective annuities and redistribution," CORE Discussion Papers 2007096, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Tomas J. Philipson & Gary S. Becker, 1998. "Old-Age Longevity and Mortality-Contingent Claims," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 551-573, June.
  3. Pierre Pestieau & Gregory Ponthiere & Motohiro Sato, 2008. "Longevity, Health Spending, and Pay-as-you-Go Pensions," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(1), pages 1-18, March.
  4. Torben Andersen & Joydeep Bhattacharya, 2008. "On Myopia as Rationale for Social Security," CESifo Working Paper Series 2401, CESifo Group Munich.
  5. Cremer, Helmuth & De Donder, Philippe & Maldonado, Dario & Pestieau, Pierre, 2012. "Taxing sin goods and subsidizing health care," Open Access publications from University of Toulouse 1 Capitole http://neeo.univ-tlse1.fr, University of Toulouse 1 Capitole.
  6. EECKHOUDT, Louis & PESTIEAU, Pierre, 2007. "Fear of ruin and longevity enhancing investment," CORE Discussion Papers 2007032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Broome, John, 2006. "Weighing Lives," OUP Catalogue, Oxford University Press, number 9780199297702, July.
  8. Jie Zhang & Junsen Zhang & Michael Leung, 2006. "Health investment, saving, and public policy," Canadian Journal of Economics, Canadian Economics Association, vol. 39(1), pages 68-93, February.
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Citations

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Cited by:
  1. Marie-Louise Leroux & Pierre Pestieau & Grégory Ponthière, 2008. "Should we subsidize longevity?," PSE Working Papers halshs-00586236, HAL.
  2. LEROUX, Marie - Louise & PONTHIERE, Grégory, 2010. "Utilitarianism and unequal longevities : A remedy?," CORE Discussion Papers 2010043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Pierre Pestieau & Gregory Ponthiere, 2012. "The Public Economics of Increasing Longevity," Hacienda Pública Española, IEF, vol. 200(1), pages 41-74, March.
  4. Pierre Pestieau & Grégory Ponthiere, 2012. "On the Policy Implications of Changing Longevity," CESifo Working Paper Series 3926, CESifo Group Munich.
  5. Pierre-André Jouvet & Pierre Pestieau & Gregory Ponthiere, 2010. "Longevity and environmental quality in an OLG model," Journal of Economics, Springer, vol. 100(3), pages 191-216, July.
  6. Pierre Pestieau & Grégory Ponthière, 2012. "The public economics of increasing longevity," Working Papers halshs-00676492, HAL.
  7. repec:hal:journl:halshs-00423933 is not listed on IDEAS
  8. Marie-Louise Leroux & Pierre Pestieau & Grégory Ponthière, 2008. "Should we subsidize longevity?," Working Papers halshs-00586236, HAL.

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