Tax Incentives and the Demand for Private Health Insurance
AbstractThis paper studies the effect of an individual insurance mandate (Medicare Levy Surcharge) on the demand for private health insurance (PHI) in Australia. It uses the administrative income tax returns data to show that mandate has several distinct effects on taxpayers' behavior. First, despite the large size of the tax penalty for not having PHI cover relative to the cost of the cheapest eligible insurance policy, the compliance with mandate is relatively low: the proportion of population with PHI cover increases by 6.5 percentage points (15.6%) at the income threshold at which the tax penalty starts to apply. This effect is most pronounced for young age taxpayers, while the middle aged people seem to be least responsive to this specific tax incentive. Second, the discontinuous increase in the average tax rate at the income threshold created by the policy generates a strong incentive for tax avoidance which manifests itself through bunching in the taxable income distribution below the threshold. Finally, after imposing some plausible assumptions the effect of the policy is extrapolated to other income levels to show that overall this policy hasn't had a significant impact on the demand for private health insurance in Australia.
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Bibliographic InfoPaper provided by Economics Discipline Group, UTS Business School, University of Technology, Sydney in its series Working Paper Series with number 16.
Date of creation: 01 Nov 2013
Date of revision:
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Other versions of this item:
- Stavrunova, Olena & Yerokhin, Oleg, 2014. "Tax incentives and the demand for private health insurance," Journal of Health Economics, Elsevier, vol. 34(C), pages 121-130.
- I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-12-06 (All new papers)
- NEP-HEA-2013-12-06 (Health Economics)
- NEP-IAS-2013-12-06 (Insurance Economics)
- NEP-PBE-2013-12-06 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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