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Optimal linear taxation under endogenous longevity

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Author Info

  • LEROUX, Marie-Louise

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • PESTIEAU, Pierre

    (Université catholique de Louvain (UCL). Center for Operations Research and Econometrics (CORE))

  • PONTHIÈRE, Grégory

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

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2008051.

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Date of creation: 01 Sep 2008
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Handle: RePEc:cor:louvco:2008051

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Related research

Keywords: longevity; myopia; genetic background; social security; paternalism;

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References

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  1. Broome, John, 2004. "Weighing Lives," OUP Catalogue, Oxford University Press, number 9780199243761.
  2. Torben Andersen & Joydeep Bhattacharya, 2008. "On Myopia as Rationale for Social Security," CESifo Working Paper Series 2401, CESifo Group Munich.
  3. 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.
  4. 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.
  5. 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.
  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. PESTIEAU, Pierre & PONTHIERE, Grégory & SATO, Motohiro, . "Longevity, health spending, and pay-as-you-go pensions," CORE Discussion Papers RP -2029, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2010. "Collective Annuities and Redistribution," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(1), pages 23-41, 02.
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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. PESTIEAU, Pierre & PONTHIERE, Grégory, . "The public economics of increasing longevity," CORE Discussion Papers RP -2464, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Torben M. Andersen & Marias H. Gestsson, 2010. "Longevity, Growth and Intergenerational Equity - The Deterministic Case," Economics wp52, Department of Economics, Central bank of Iceland.
  4. Leroux, Marie-Louise & Ponthiere, Gregory, 2013. "Utilitarianism and unequal longevities: A remedy?," Economic Modelling, Elsevier, vol. 30(C), pages 888-899.
  5. repec:hal:wpaper:halshs-00676492 is not listed on IDEAS
  6. JOUVET, Pierre-André & PESTIEAU, Pierre & PONTHIERE, Grégory, . "Longevity and environmental quality in an OLG model," CORE Discussion Papers RP -2377, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Balestra, Carlotta & DOTTORI, Davide, 2009. "Aging society, health and the environment," CORE Discussion Papers 2009037, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. repec:hal:wpaper:halshs-00564934 is not listed on IDEAS
  9. repec:hal:journl:halshs-00423933 is not listed on IDEAS
  10. Pierre Pestieau & Grégory Ponthiere, 2012. "On the Policy Implications of Changing Longevity," CESifo Working Paper Series 3926, CESifo Group Munich.
  11. repec:hal:wpaper:halshs-00586236 is not listed on IDEAS

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