IDEAS home Printed from https://ideas.repec.org/a/cje/issued/v38y2005i2p345-365.html
   My bibliography  Save this article

Tax credits, insurance, and the use of medical care

Author

Listed:
  • Michael Smart
  • Mark Stabile

Abstract

The personal income tax systems in Canada, the United States, and elsewhere permit deductions or tax credits for out-of-pocket health care expenditures and private medical insurance premiums. Little is known about the effects of such tax measures on individual behaviour, in contrast to the extensive research on the tax exemption for employer-provided health insurance. In this paper, we exploit variation in the after-tax cost of health expenditures under the tax law to estimate the tax price elasticity of demand for prescription drugs, health insurance, and other eligible expenditures. We find evidence of moderate to large tax price elasticities, compared with traditional point-of-service price elasticity estimates - despite the apparent differences in the way tax subsidies are experienced by consumers. In contrast, we find no evidence the tax subsidy affects demand for health insurance on the intensive margin, which we show is consistent with the theory of optimal self-insurance. We discuss the implications of our results for recent proposals to reform public and private health insurance systems.

Suggested Citation

  • Michael Smart & Mark Stabile, 2005. "Tax credits, insurance, and the use of medical care," Canadian Journal of Economics, Canadian Economics Association, vol. 38(2), pages 345-365, May.
  • Handle: RePEc:cje:issued:v:38:y:2005:i:2:p:345-365
    DOI: 10.1111/j.0008-4085.2005.00283.x
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/j.0008-4085.2005.00283.x
    Download Restriction: access restricted to subscribers

    As the access to this document is restricted, you may want to search for a different version of it.

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Cinzia Di Novi & Anna Marenzi & Dino Rizzi, 2018. "Do healthcare tax credits help poor-health individuals on low incomes?," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 19(2), pages 293-307, March.
    2. Mark Stabile & Sarah Thomson, 2014. "The Changing Role of Government in Financing Health Care: An International Perspective," Journal of Economic Literature, American Economic Association, vol. 52(2), pages 480-518, June.
    3. Guo, Elaine Xiaoyu & Sweetman, Arthur & Guindon, G. Emmanuel, 2020. "Socioeconomic differences in prescription drug supplemental coverage in Canada: A repeated cross-sectional study," Health Policy, Elsevier, vol. 124(3), pages 252-260.
    4. Menezes-Filho, Naercio & Politi, Ricardo, 2020. "Estimating the causal effects of private health insurance in Brazil: Evidence from a regression kink design," Social Science & Medicine, Elsevier, vol. 264(C).

    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • H2 - Public Economics - - Taxation, Subsidies, and Revenue

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cje:issued:v:38:y:2005:i:2:p:345-365. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Prof. Werner Antweiler). General contact details of provider: http://edirc.repec.org/data/ceaaaea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.