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Private, social and self insurance for longterm care: a political economy analysis

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  • De Donder, Philippe
  • Pestieau, Pierre

Abstract

We analyze the determinants of the demand for social, private and self-insurance for long-term care in an environment where agents di¤er in income, probability of becoming dependent and of receiving family help. Uniform social benefits are financed with a proportional income tax and are thus redistributive, while private insurance is actuarially fair. We obtain a rich pattern of insights, depending on whether private insurance is available or not, on its loading factor, and on the correlation between, on the one hand, income and risk, and, on the other hand, income and family help. Although the availability of private insurance decreases the demand for social insurance, it only a¤ects a minority of agents so that the majority-chosen social insurance level remains una¤ected. Family support crowds out the demand for both private and social insurance, and may even suppress any demand for private insurance. Family help crowds out self-insurance only for agents whose demand for both social and private insurance is nil. A general increase in the probability of becoming dependent need not increase the demand for social insurance, since it decreases its return.

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File URL: http://idei.fr/doc/by/de_donder/PDPPVote%20LTC2-submitted.pdf
File Function: Submitted to European Journal of Political Economy
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Bibliographic Info

Paper provided by Toulouse School of Economics (TSE) in its series TSE Working Papers with number 11-305.

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Date of creation: Dec 2011
Date of revision: 25 Feb 2013
Handle: RePEc:tse:wpaper:25822

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Related research

Keywords: long-term care; social insurance; family help; correlation between risk and income; voting.;

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References

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  1. Eric Bonsang, 2008. "Does Informal Care from Children to their Elderly Parents Substitute for Formal Care in Europe?," CREPP Working Papers 0801, Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège.
  2. Nuscheler, Robert & Roeder, Kerstin, 2013. "The political economy of long-term care," European Economic Review, Elsevier, vol. 62(C), pages 154-173.
  3. CASAMATTA, Georges & CREMER , Helmuth & PESTIEAU, Pierre, . "The political economy of social security," CORE Discussion Papers RP -1475, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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Cited by:
  1. De Donder, Philippe & Leroux, Marie-Louise, 2012. "Behavioral Biases and Long Term Care Annuities: A Political Economy Approach," IDEI Working Papers 749, Institut d'Économie Industrielle (IDEI), Toulouse, revised Feb 2013.
  2. DE DONDER, Philippe & LEROUX, Marie-Louise, 2013. "Behavioral biases and long term care insurance: A political economy approach," CORE Discussion Papers 2013020, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).

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