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Social long term care insurance and redistribution

Author

Listed:
  • CREMER, Helmuth

    () (Institut Universitaire de France and IDEI, Université de Toulouse, France)

  • PESTIEAU, Pierre

    () (CREPP, Université de Liège, Belgium and Université catholique de Louvain, CORE, B-1348 Louvain-la- Neuve, Belgium)

Abstract

We study the role of social long term care (LTC) insurance when income taxation and private insurance markets are imperfect. Policy instruments include public provision of LTC as well as a subsidy on private insurance. The subsidy scheme may be linear or nonlinear. For the linear part we consider a continuous distribution of types, characterized by earnings and survival probabilities. In the nonlinear part, society consists of three types: poor, middle class and rich. The first type is too poor to provide for dependence; the middle class type purchases private insurance and the high income type is self-insured. The main questions are at what level LTC should be provided to the poor and whether it is desirable to subsidize private LTC for the middle class. Interestingly, the results are similar under both linear and nonlinear schemes. First, in both cases, a (marginal) subsidy of private LTC insurance is not desirable. As a matter of fact, private insurance purchases should typically be taxed (at least at the margin). Second, the desirability of public provision of LTC services depends on the way the income tax is restricted. In the linear case, it may be desirable only if no demogrant (uniform lump-sum transfer) is available. In the nonlinear case, public provision is desirable when the income tax is sufficiently restricted. Specifically, this is the case when the income is subject only to a proportional payroll tax while the LTC reimbursement policy can be nonlinear.

Suggested Citation

  • CREMER, Helmuth & PESTIEAU, Pierre, 2011. "Social long term care insurance and redistribution," CORE Discussion Papers 2011024, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2011024
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    References listed on IDEAS

    as
    1. Cremer, Helmuth & Roeder, Kerstin, 2013. "Long-term care policy, myopia and redistribution," Journal of Public Economics, Elsevier, vol. 108(C), pages 33-43.
    2. Helmuth Cremer & Pierre Pestieau, 1996. "Redistributive taxation and social insurance," International Tax and Public Finance, Springer;International Institute of Public Finance, pages 281-295.
    3. Brown, Jeffrey R. & Finkelstein, Amy, 2007. "Why is the market for long-term care insurance so small?," Journal of Public Economics, Elsevier, pages 1967-1991.
    4. CREMER, Helmuth & PESTIEAU, Pierre & PONTHIERE, Grégory, 2012. "The economics of long-term care: a survey," CORE Discussion Papers 2012030, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Varian, Hal R., 1980. "Redistributive taxation as social insurance," Journal of Public Economics, Elsevier, vol. 14(1), pages 49-68, August.
    6. Diamond, P. A., 1975. "A many-person Ramsey tax rule," Journal of Public Economics, Elsevier, vol. 4(4), pages 335-342, November.
    7. Alain Jousten & Barbara Lipszyc & Maurice Marchand & Pierre Pestieau, 2005. "Long-term Care Insurance and Optimal Taxation for Altruistic Children," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 61(1), pages 1-1, March.
    8. Pierre Pestieau & Motohiro Sato, 2008. "Long-Term Care: the State, the Market and the Family," Economica, London School of Economics and Political Science, vol. 75(299), pages 435-454, August.
    9. Jeffrey R. Brown & Amy Finkelstein, 2009. "The Private Market for Long-Term Care Insurance in the United States: A Review of the Evidence," Journal of Risk & Insurance, The American Risk and Insurance Association, vol. 76(1), pages 5-29.
    10. repec:cor:louvrp:-1753 is not listed on IDEAS
    11. Cremer, Helmuth & Gahvari, Firouz, 1995. "Uncertainty, Optimal Taxation and the Direct versus Indirect Tax Controversy," Economic Journal, Royal Economic Society, vol. 105(432), pages 1165-1179, September.
    12. Besley, Timothy & Coate, Stephen, 1991. "Public Provision of Private Goods and the Redistribution of Income," American Economic Review, American Economic Association, pages 979-984.
    13. Jonathan Eaton & Harvey S. Rosen, 1980. "Optimal Redistributive Taxation and Uncertainty," The Quarterly Journal of Economics, Oxford University Press, vol. 95(2), pages 357-364.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Masaya Yasuoka, 2014. "Financing Elderly Care Service Subsidies horizontally differentiated duopoly," Discussion Paper Series 122, School of Economics, Kwansei Gakuin University, revised Oct 2014.
    2. Cremer, Helmuth & Gahvari, Firouz & Pestieau, Pierre, 2017. "Uncertain altruism and the provision of long term care," Journal of Public Economics, Elsevier, pages 12-24.
    3. Canta Chiara & Pestieau Pierre, 2013. "Long-Term Care Insurance and Family Norms," The B.E. Journal of Economic Analysis & Policy, De Gruyter, pages 401-428.
    4. Drèze, Jacques H. & Pestieau, Pierre & Schokkaert, Erik, 2016. "Arrow’s theorem of the deductible and long-term care insurance," Economics Letters, Elsevier, vol. 148(C), pages 103-105.
    5. Cremer, Helmuth & Roeder, Kerstin, 2013. "Long-term care policy, myopia and redistribution," Journal of Public Economics, Elsevier, pages 33-43.
    6. Masaya Yasuoka, 2017. "Elderly Care Service in an Aging Society," Discussion Paper Series 168, School of Economics, Kwansei Gakuin University, revised Oct 2017.
    7. Atsushi Miyake & Masaya Yasuoka, 2016. "Which Should the Government Subsidize: Child Care or Elderly Care?," Discussion Paper Series 144, School of Economics, Kwansei Gakuin University, revised Jun 2016.
    8. repec:eee:hapoch:v1_381 is not listed on IDEAS

    More about this item

    Keywords

    long term care; social insurance;

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • G22 - Financial Economics - - Financial Institutions and Services - - - Insurance; Insurance Companies; Actuarial Studies

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