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Should we Subsidize Longevity?

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  • Marie-Louise Leroux
  • Pierre Pestieau
  • Grégory Ponthiere

Abstract

This paper studies the design of the optimal non linear taxation in an economy where longevity varies across agents, and depends on three factors: longevity genes, health investment and farsightedness. Provided earnings, farsightedness and genes are correlated, governmental intervention can be justified on two grounds: correction for a lack of farsightedness and redistribution across both earnings and genetic dimensions. Whether longevity-enhancing spending should be subsidized or taxed is shown to depend on the combined effects of myopia, self-selection and free-riding on the annuity returns. Our policy conclusions depend also on how productivity and genes are correlated, on the complementarity of genes and efforts in the survival function, and on how the government weights the welfare of heterogeneous agents. All in all, it might be desirable to tax longevity-enhancing spending.

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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2614.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2614

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Keywords: optimal taxation; longevity; genetic background; heterogeneity; myopia;

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References

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  1. Pierre Pestieau & Gregory Ponthiere & Motohiro Sato, 2008. "Longevity, Health Spending, and Pay-as-you-Go Pensions," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, Mohr Siebeck, Tübingen, vol. 64(1), pages 1-18, March.
  2. Pierre-André Jouvet & Pierre Pestieau & Grégory Ponthière, 2007. "Longevity and environmental quality in an OLG model," EconomiX Working Papers, University of Paris West - Nanterre la Défense, EconomiX 2007-19, University of Paris West - Nanterre la Défense, EconomiX.
  3. Kevin M. Murphy & Robert H. Topel, 2006. "The Value of Health and Longevity," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 114(5), pages 871-904, October.
  4. Broome, John, 2004. "Weighing Lives," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780199243761, October.
  5. LEROUX, Marie-Louise & PESTIEAU, Pierre & PONTHIERE, Grégory, . "Optimal linear taxation under endogenous longevity," CORE Discussion Papers RP, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) -2268, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  6. EECKHOUDT, Louis & PESTIEAU, Pierre, 2007. "Fear of ruin and longevity enhancing investment," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2007032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Jie Zhang & Junsen Zhang & Michael Leung, 2006. "Health investment, saving, and public policy," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 39(1), pages 68-93, February.
  8. Marie-Louise Leroux & Gregory Ponthiere, 2009. "Optimal tax policy and expected longevity: a mean and variance utility approach," International Tax and Public Finance, Springer, Springer, vol. 16(4), pages 514-537, August.
  9. LEROUX, Marie-Louise & PONTHIERE, Grégory, 2008. "Optimal tax policy and expected longevity: a mean and variance approach," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2008039, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2010. "Collective Annuities and Redistribution," Journal of Public Economic Theory, Association for Public Economic Theory, Association for Public Economic Theory, vol. 12(1), pages 23-41, 02.
  11. 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.
  12. LEROUX, Marie-Louise, 2008. "Endogenous differential mortality, non monitored effort and optimal non linear taxation," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2008029, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Citations

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Cited by:
  1. repec:hal:journl:halshs-00423933 is not listed on IDEAS
  2. LEROUX, Marie - Louise & PONTHIERE, Grégory, 2009. "Wives, husbands and wheelchairs : Optimal tax policy under gender-specific health," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2009071, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. repec:hal:wpaper:halshs-00586010 is not listed on IDEAS
  4. LEROUX, Marie - Louise & PONTHIERE, Grégory, 2010. "Utilitarianism and unequal longevities : A remedy?," CORE Discussion Papers, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) 2010043, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. repec:hal:wpaper:halshs-00575059 is not listed on IDEAS
  6. repec:hal:wpaper:halshs-00566858 is not listed on IDEAS

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