Marisol Rodríguez () (Grup de Recerca en Economia del Benestar (CREB, Departament de Política Econòmica i Estructura Econòmica Mundial, Universitat de Barcelona) Alexandrina Stoyanova () (Grup de Recerca en Economia del Benestar (CREB), Departament d'Economia i Empresa, Universitat de Barcelona)
Abstract
The 1998 Spanish reform of the Personal Income Tax eliminated the 15% deduction for private medical expenditures including payments on private health insurance (PHI) policies. To avoid an undesirable increase in the demand for publicly funded health care, tax incentives to buy PHI were not completely removed but basically shifted from individual to group employer-paid policies. In a unique fiscal experiment, at the same time that the tax relief for individually purchased policies was abolished, the government provided for tax allowances on policies taken out through employment. Using a bivariate probit model on data from National Health Surveys, we estimate the impact of said reform on the demand for PHI and the changes occurred within it. Our findings suggest that the total probability of buying PHI was not significantly affected. Indeed, the fall in the demand for individual policies (by 10% between 1997 and 2001) was offset by an increase in the demand for group employer-paid ones, so that the overall size of the market remained virtually unchanged. We also briefly discuss the welfare effects on the state budget, the industry and society at large.
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Paper provided by Xarxa de Referència en Economia Aplicada (XREAP) in its series Working Papers with number
CREAP2006-12.
Length: 33 pages Date of creation: Dec 2006 Date of revision:
Dec 2006 Handle: RePEc:xrp:wpaper:creap2006-12
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Find related papers by JEL classification: I10 - Health, Education, and Welfare - - Health - - - General H31 - Public Economics - - Fiscal Policies and Behavior of Economic Agents - - - Household
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