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Optimal linear taxation under endogenous longevity

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  • Marie-Louise Leroux

    (CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique)

  • Pierre Pestieau

    (CORE - Center of Operation Research and Econometrics [Louvain] - Université Catholique de Louvain (UCL) - Belgique, CREPP - Center of Research in Public Economics and Population Economics - Université de Liège, CEPR - Center for Economic Policy Research - CEPR, EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

  • Grégory Ponthière

    (EEP-PSE - Ecole d'Économie de Paris - Paris School of Economics - Ecole d'Économie de Paris, PSE - Paris-Jourdan Sciences Economiques - CNRS : UMR8545 - École des Hautes Études en Sciences Sociales (EHESS) - École des Ponts ParisTech (ENPC) - École normale supérieure [ENS] - Paris)

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' 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 HAL in its series PSE Working Papers with number halshs-00586241.

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Date of creation: Sep 2008
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Handle: RePEc:hal:psewpa:halshs-00586241

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Related research

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

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References

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  1. 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).
  2. CREMER, Helmuth & DE DONDER, Philippe & MALDONADO, Dario & PESTIEAU, Pierre, 2008. "Taxing sin goods and subsidizing health care," CORE Discussion Papers 2008031, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  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. Broome, John, 2004. "Weighing Lives," OUP Catalogue, Oxford University Press, number 9780199243761, September.
  6. 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.
  7. 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).
  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. repec:hal:wpaper:halshs-00676492 is not listed on IDEAS
  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. Leroux, Marie-Louise & Ponthiere, Gregory, 2013. "Utilitarianism and unequal longevities: A remedy?," Economic Modelling, Elsevier, vol. 30(C), pages 888-899.
  4. Pierre Pestieau & Grégory Ponthiere, 2012. "On the Policy Implications of Changing Longevity," CESifo Working Paper Series 3926, CESifo Group Munich.
  5. 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).
  6. Pierre-André Jouvet & Pierre Pestieau & Grégory Ponthière, 2007. "Longevity and environmental quality in an OLG model," EconomiX Working Papers 2007-19, University of Paris West - Nanterre la Défense, EconomiX.
  7. LEROUX, Marie-Louise & PESTIEAU, Pierre & PONTHIÈRE, Grégory, 2008. "Should we subsidize longevity?," CORE Discussion Papers 2008058, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  8. repec:hal:wpaper:halshs-00586236 is not listed on IDEAS
  9. repec:hal:journl:halshs-00423933 is not listed on IDEAS
  10. repec:hal:wpaper:halshs-00564934 is not listed on IDEAS
  11. Torben M. Andersen & Marias H. Gestsson, 2010. "Longevity, Growth and Intergenerational Equity - The Deterministic Case," Economics wp52, Department of Economics, Central bank of Iceland.

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