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Endogenous Differential Mortality, Non-Contractible Effort and Non Linear Taxation

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  • Marie-Louise Leroux

Abstract

This 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 Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2567.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2567

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Keywords: annuities; effort; differential mortality; non linear taxation; value of life;

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  1. Jeffrey B. Liebman, 2001. "Redistribution in the Current U.S. Social Security System," NBER Working Papers 8625, National Bureau of Economic Research, Inc.
  2. Bommier, Antoine & Magnac, Thierry & Rapoport, Hillel & Roger, Muriel, 2003. "Droits à la retraite et mortalité différentielle," IDEI Working Papers 181, Institut d'Économie Industrielle (IDEI), Toulouse, revised May 2004.
  3. CREMER, Helmuth & LOZACHMEUR, Jean-Marie & PESTIEAU, Pierre, . "Social security, retirement age and optimal income taxation," CORE Discussion Papers RP -1722, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Kevin M. Murphy & Robert H. Topel, 2006. "The Value of Health and Longevity," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 871-904, October.
  5. Antoine Bommier, 2006. "Mortality, Time Preference and Life-Cycle Models," Working Papers hal-00441888, HAL.
  6. Helmuth Cremer & Philippe De Donder & Darío Maldonado & Pierre Pestieau, 2008. "Taxing Sin Goods and Subsidizing Health Care," CESifo Working Paper Series 2297, CESifo Group Munich.
  7. Eytan Sheshinski, 2007. "The Economic Theory of Annuities," Economics Books, Princeton University Press, edition 1, volume 1, number 8536.
  8. 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.
  9. BOMMIER, Antoine & LEROUX, Marie-Louise & LOZACHMEUR, Jean-Marie, . "Differential mortality and social security," CORE Discussion Papers RP -2285, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Gary S. Becker & Tomas J. Philipson & Rodrigo R. Soares, 2003. "The Quantity and Quality of Life and the Evolution of World Inequality," NBER Working Papers 9765, National Bureau of Economic Research, Inc.
  11. Antoine Bommier, 2006. "Uncertain Lifetime And Intertemporal Choice: Risk Aversion As A Rationale For Time Discounting," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 47(4), pages 1223-1246, November.
  12. 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).
  13. Julia Lynn Coronado & Don Fullerton & Thomas Glass, 2000. "The Progressivity of Social Security," NBER Working Papers 7520, National Bureau of Economic Research, Inc.
  14. Jonathan Gruber & David A. Wise, 1999. "Social Security and Retirement around the World," NBER Books, National Bureau of Economic Research, Inc, number grub99-1.
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