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Tax Subsidies And The Provision Of Health Insurance In Small Firms

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  • Mark Stabile

Abstract

This paper examines the effects of tax subsidies to employer provided health insurance on the distribution of insurance across firms of different sizes. I present a simple model which shows that the tax subsidies may increase the provision of insurance in smaller firms and hence help equalize the distribution of health benefits across firms. I then test this hypothesis using data in both the United States and Canada. My findings indicate that the subsidies reduce the disparity in coverage levels between large and small firms and promote insurance through the workplace instead of on the private market. These findings imply that the tax subsidies may be distorting the labor market by allowing a number of small firms to offer health insurance.

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File URL: http://www.economics.utoronto.ca/public/workingPapers/UT-ECIPA-MSTABILE-99-01.pdf
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Bibliographic Info

Paper provided by University of Toronto, Department of Economics in its series Working Papers with number mstabile-99-01.

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Length: 40 pages
Date of creation: 11 Nov 1999
Date of revision:
Handle: RePEc:tor:tecipa:mstabile-99-01

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  1. Keeler, Emmett B & Morrow, Daniel T & Newhouse, Joseph P, 1977. "The Demand for Supplementary Health Insurance, or Do Deductibles Matter?," Journal of Political Economy, University of Chicago Press, vol. 85(4), pages 789-801, August.
  2. Jonathan Gruber & James M. Poterba, 1996. "Tax Incentives and the Decision to Purchase Health Insurance: Evidence from the Self-Employed," NBER Working Papers 4435, National Bureau of Economic Research, Inc.
  3. Jonathan Gruber, 1998. "Health Insurance and the Labor Market," NBER Working Papers 6762, National Bureau of Economic Research, Inc.
  4. Feldstein, Martin & Friedman, Bernard, 1977. "Tax subsidies, the rational demand for insurance and the health care crisis," Journal of Public Economics, Elsevier, vol. 7(2), pages 155-178, April.
  5. William M. Gentry & Eric Peress, 1994. "Taxes and Fringe Benefits Offered by Employers," NBER Working Papers 4764, National Bureau of Economic Research, Inc.
  6. Pauly, Mark V, 1986. "Taxation, Health Insurance, and Market Failure in the Medical Economy," Journal of Economic Literature, American Economic Association, vol. 24(2), pages 629-75, June.
  7. Holtz-Eakin, Douglas & Penrod, John R. & Rosen, Harvey S., 1996. "Health insurance and the supply of entrepreneurs," Journal of Public Economics, Elsevier, vol. 62(1-2), pages 209-235, October.
  8. Feldstein, Martin S, 1973. "The Welfare Loss of Excess Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 251-80, Part I, M.
  9. Manning, Willard G. & Blumberg, Linda & Moulton, Lawrence H., 1995. "The demand for alcohol: The differential response to price," Journal of Health Economics, Elsevier, vol. 14(2), pages 123-148, June.
  10. Woodbury, Stephen A, 1983. "Substitution between Wage and Nonwage Benefits," American Economic Review, American Economic Association, vol. 73(1), pages 166-82, March.
  11. Mark Stabile, 2001. "Private insurance subsidies and public health care markets: evidence from Canada," Canadian Journal of Economics, Canadian Economics Association, vol. 34(4), pages 921-942, November.
  12. Holmer, Martin, 1984. "Tax policy and the demand for health insurance," Journal of Health Economics, Elsevier, vol. 3(3), pages 203-221, December.
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