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Optimal linear taxation under endogenous longevity

  • Marie-Louise Leroux
  • Pierre Pestieau
  • Gregory Ponthiere


This paper studies the optimal linear tax-transfer policy in an economy where agents differ in productivity and in genetic background and where longevity depends on health spending and genes. If agents internalize imperfectly the impact of health spending on longevity, the utilitarian optimum can be decentralized with type-specific lump-sum transfers and Pigouvian taxes correcting for agents' myopia and for their misperception of health spending's effects on the economy's resources. The second-best problem is examined under linear taxation instruments. It may be optimal to tax health spending, especially under complementarity of genes and health spending in the production of longevity.

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Article provided by Springer in its journal Journal of Population Economics.

Volume (Year): 24 (2011)
Issue (Month): 1 (January)
Pages: 213-237

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Handle: RePEc:spr:jopoec:v:24:y:2011:i:1:p:213-237
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  1. Torben Andersen & Joydeep Bhattacharya, 2011. "On myopia as rationale for social security," Economic Theory, Springer, vol. 47(1), pages 135-158, May.
  2. Jie Zhang & Junsen Zhang & Michael Leung, 2006. "Health investment, saving, and public policy," Canadian Journal of Economics, Canadian Economics Association, vol. 39(1), pages 68-93, February.
  3. EECKHOUDT, Louis & PESTIEAU, Pierre, 2007. "Fear of ruin and longevity enhancing investment," CORE Discussion Papers 2007032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  4. Cremer, Helmuth & De Donder, Philippe & Maldonado, Darío & Pestieau, Pierre, 2008. "Taxing Sin Goods and Subsidizing Health Care," CEPR Discussion Papers 6777, C.E.P.R. Discussion Papers.
  5. Tomas J. Philipson & Gary S. Becker, 1998. "Old-Age Longevity and Mortality-Contingent Claims," Journal of Political Economy, University of Chicago Press, vol. 106(3), pages 551-573, June.
  6. CREMER, Helmuth & LOZACHMEUR, Jean-Marie & PESTIAU, Pierre, 2007. "Collective annuities and redistribution," CORE Discussion Papers 2007096, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. Broome, John, 2006. "Weighing Lives," OUP Catalogue, Oxford University Press, number 9780199297702.
  8. PESTIEAU, Pierre & PONTHIERE, Grégory & SATO, Motohiro, . "Longevity, health spending, and pay-as-you-go pensions," CORE Discussion Papers RP 2029, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
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