Endogenous Differential Mortality, Non-Contractible Effort and Non Linear Taxation
AbstractThis paper studies a problem of non linear taxation when individuals have different longevities resulting from a non-monetary effort (like exercising). We first present the laissez-faire and the first best. Like Becker and Philipson (1998), we find that the laissez-faire level of effort is too high compared with the first best, because individuals do not internalize the impact of survival on the return of their savings. We also claim that because of its non-monetary form, effort is not contractible. That is why we modify our framework and assume, for the rest of the paper, that effort is determined by the individual while the social planner only allocates consumptions. It turns out that, under full information, a tax on the return of annuitized savings is desirable for both types. This tax is higher for the low-survival individual. Under asymmetric information, the low-survival individual still faces a tax while the high-survival individual might now face a positive or negative tax on annuities. Interestingly, our results depend on the value of life.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2567.
Date of creation: 2009
Date of revision:
annuities; effort; differential mortality; non linear taxation; value of life;
Other versions of this item:
- Marie-Louise Leroux, 2011. "Endogenous differential mortality, non-contractible effort and non-linear taxation," International Tax and Public Finance, Springer, vol. 18(1), pages 56-73, February.
- H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
- I12 - Health, Education, and Welfare - - Health - - - Health Production
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