Optimal linear taxation under endogenous longevity
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. It is shown that, if agents internalize imperfectly the impact of genes and health spending on longevity, the utilitarian social optimum can be decentralized with type-specific redistributive lump sum transfers and Pigouvian taxes correcting for agents's myopia (leading to undersaving and underinvestment in health), and for their incapacity to perceive the effect of health spending on the resource constraint of the economy (causing overinvestment in health). The second-best problem is also examined under linear taxation instruments. Our main result is that it may be optimal to tax health spending, in particular under a complementarity of genes and health spending in the production of longevity.
|Date of creation:||01 Sep 2008|
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- Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2010.
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- Helmuth Cremer & Jean-Marie Lozachmeur & Pierre Pestieau, 2010. "Collective Annuities and Redistribution," Post-Print halshs-00754472, HAL.
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"Taxing Sin Goods and Subsidizing Health Care,"
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FinanzArchiv: Public Finance Analysis,
Mohr Siebeck, Tübingen, vol. 64(1), pages 1-18, March.
- PESTIEAU, Pierre & PONTHIERE, Grégory & SATO, Motohiro, "undated". "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).
- Pierre Pestieau & Grégory Ponthière & Motohiro Sato, 2008. "Longevity, health spending, and pay-as-you-go pensions," Post-Print halshs-00754319, HAL.
- Broome, John, 2006. "Weighing Lives," OUP Catalogue, Oxford University Press, number 9780199297702.
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