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Should we Subsidize Longevity?

  • Marie-Louise Leroux
  • Pierre Pestieau
  • Grégory Ponthiere

This paper studies the design of the optimal non linear taxation in an economy where longevity varies across agents, and depends on three factors: longevity genes, health investment and farsightedness. Provided earnings, farsightedness and genes are correlated, governmental intervention can be justified on two grounds: correction for a lack of farsightedness and redistribution across both earnings and genetic dimensions. Whether longevity-enhancing spending should be subsidized or taxed is shown to depend on the combined effects of myopia, self-selection and free-riding on the annuity returns. Our policy conclusions depend also on how productivity and genes are correlated, on the complementarity of genes and efforts in the survival function, and on how the government weights the welfare of heterogeneous agents. All in all, it might be desirable to tax longevity-enhancing spending.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2009/wp-cesifo-2009-04/cesifo1_wp2614.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 2614.

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Date of creation: 2009
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Handle: RePEc:ces:ceswps:_2614
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  1. Pierre-André Jouvet & Pierre Pestieau & Grégory Ponthière, 2007. "Longevity and environmental quality in an OLG model," EconomiX Working Papers 2007-19, University of Paris West - Nanterre la Défense, EconomiX.
  2. LEROUX, Marie-Louise & PESTIEAU, Pierre & PONTHIÈRE, Grégory, 2008. "Optimal linear taxation under endogenous longevity," CORE Discussion Papers 2008051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  3. Gary S. Becker & Tomas J. Philipson & Rodrigo R. Soares, 2003. "The Quantity and Quality of Life and the Evolution of World Inequality," NBER Working Papers 9765, National Bureau of Economic Research, Inc.
  4. LEROUX, Marie-Louise, 2008. "Endogenous differential mortality, non monitored effort and optimal non linear taxation," CORE Discussion Papers 2008029, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2010. "Collective Annuities and Redistribution," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(1), pages 23-41, 02.
  6. Kevin M. Murphy & Robert H. Topel, 2005. "The Value of Health and Longevity," NBER Working Papers 11405, National Bureau of Economic Research, Inc.
  7. Broome, John, 2006. "Weighing Lives," OUP Catalogue, Oxford University Press, number 9780199297702, March.
  8. 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.
  9. LEROUX, Marie-Louise & PONTHIERE, Grégory, 2008. "Optimal tax policy and expected longevity: a mean and variance approach," CORE Discussion Papers 2008039, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  10. 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).
  11. Pierre Pestieau & Gregory Ponthiere & Motohiro Sato, 2008. "Longevity, Health Spending, and Pay-as-you-Go Pensions," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(1), pages 1-18, March.
  12. Marie-Louise Leroux & Grégory Ponthière, 2008. "Optimal tax policy and expected longevity: A mean and variance utility approach," PSE Working Papers halshs-00586247, HAL.
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