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Old age or dependence: Which social insurance?

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  • Yukihiro Nishimura
  • Pierre Pestieau

Abstract

In recent decades, there has been an increase in life expectancy and a rapid increase of the very senior dependency ratio in developed countries. In this context, we examine the optimal levels of public pensions and public long‐term care (LTC) insurance. According to the most reasonable estimates of correlations among individual incomes, risks of mortality and dependency, we show that it is always desirable for a utilitarian social planner to have a balanced budget increase in LTC benefits at the expense of public pension benefits, until the cost of LTC is fully covered. This is true with or without liquidity constraints. For a Rawlsian planner, the balance between the two schemes depends on a comparison of the ratio of the survival probability to the dependence risk of the poor with its population average.

Suggested Citation

  • Yukihiro Nishimura & Pierre Pestieau, 2022. "Old age or dependence: Which social insurance?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 24(4), pages 639-652, August.
    • Handle: RePEc:bla:jpbect:v:24:y:2022:i:4:p:639-652
    DOI: 10.1111/jpet.12571
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    Cited by:

    1. Justina Klimaviciute & Pierre Pestieau, 2023. "The economics of long‐term care. An overview," Journal of Economic Surveys, Wiley Blackwell, vol. 37(4), pages 1192-1213, September.

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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions

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