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The Bequest Tax as Long-Term Care Insurance

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  • Johann K. Brunner

Abstract

I study a model of a representative individual who has a motive for leaving bequests and is at risk of needing long-term care in old age. I assume - as is typical for OECD countries - that the individual is not fully insured against this risk. Moreover, at realization the individual is unable to adapt labor supply or consumption; then expenditures for long-term care result in a one-to-one reduction of the estate. In this situation a tax on bequests provides insurance and its introduction causes a smaller deadweight loss than an income or consumption tax. I also characterize the optimal tax and transfer system in this model.

Suggested Citation

  • Johann K. Brunner, 2012. "The Bequest Tax as Long-Term Care Insurance," CESifo Working Paper Series 3901, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_3901
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp3901.pdf
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    References listed on IDEAS

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    1. W. J. Corlett & D. C. Hague, 1953. "Complementarity and the Excess Burden of Taxation," Review of Economic Studies, Oxford University Press, vol. 21(1), pages 21-30.
    2. Emmanuel Farhi & Iván Werning, 2010. "Progressive Estate Taxation," The Quarterly Journal of Economics, Oxford University Press, vol. 125(2), pages 635-673.
    3. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2001. "Direct versus Indirect Taxation: The Design of the Tax Structure Revisted," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(3), pages 781-799, August.
    4. Cremer, Helmuth & Pestieau, Pierre & Rochet, Jean-Charles, 2003. "Capital income taxation when inherited wealth is not observable," Journal of Public Economics, Elsevier, pages 2475-2490.
    5. Deaton, Angus, 1981. "Optimal Taxes and the Structure of Preferences," Econometrica, Econometric Society, vol. 49(5), pages 1245-1260, September.
    6. Boadway, Robin & Marchand, Maurice & Pestieau, Pierre, 2000. " Redistribution with Unobservable Bequests: A Case for Taxing Capital Income," Scandinavian Journal of Economics, Wiley Blackwell, pages 253-267.
    7. Johann K. Brunner & Susanne Pech, 2012. "Optimal Taxation of Bequests in a Model with Initial Wealth," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1368-1392, December.
    8. Brunner Johann K. & Pech Susanne, 2012. "Optimal Taxation of Wealth Transfers When Bequests are Motivated by Joy of Giving," The B.E. Journal of Economic Analysis & Policy, De Gruyter, vol. 12(1), pages 1-22, March.
    9. Wojciech Kopczuk, 2010. "Economics of estate taxation: a brief review of theory and evidence," NBER Working Papers 15741, National Bureau of Economic Research, Inc.
    10. Arrondel, L. & Masson, A. & Pestieau, P., 1996. "Bequest and inheritance: empirical issues and France-U.S. comparison," DELTA Working Papers 96-19, DELTA (Ecole normale supérieure).
    11. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
    12. Grossmann, Volker & Strulik, Holger, 2010. "Should continued family firms face lower taxes than other estates?," Journal of Public Economics, Elsevier, pages 87-101.
    13. Pauly, Mark V, 1990. "The Rational Nonpurchase of Long-term-Care Insurance," Journal of Political Economy, University of Chicago Press, vol. 98(1), pages 153-168, February.
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    Cited by:

    1. Cremer, Helmuth & Pestieau, Pierre & Roeder, Kerstin, 2016. "Social long-term care insurance with two-sided altruism," Research in Economics, Elsevier, pages 101-109.
    2. Brunner Johann K., 2014. "Die Erbschaftsteuer – Bestandteil eines optimalen Steuersystems?," Perspektiven der Wirtschaftspolitik, De Gruyter, pages 199-218.

    More about this item

    Keywords

    estate tax; long-term care insurance;

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H24 - Public Economics - - Taxation, Subsidies, and Revenue - - - Personal Income and Other Nonbusiness Taxes and Subsidies
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private

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