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Health, fairness and taxation

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  • VALLETTA, Giacomo

    () (Maastricht University, the Netherlands and Université catholique de Louvain, CORE, B-1348 Louvain-la-Neuve)

Abstract

We consider a model where agents differ in their preferences about consumption labor and health, in their (health-dependent) earning ability, and in their health disposition. We study the joint taxation of income and health expenditure, under incentive-compatibility constraints, on the basis of efficiency and fairness principles. The fairness principles we consider propose, on one side, to reduce inequalities deriving from factors that do not depend on individuals' responsibility. On the other side, redistribution should be precluded at least when all agents in the economy have equal physical characteristics. We construct, on the basis of such principles, a particular social welfare function. Then we give the explicit formula for the comparison of tax policies: we prove that a tax reform should always benefit agents with the worst earning ability and the worst health disposition first. Finally, at the bottom of the income distribution the optimal tax scheme should exhibit non-uniform tax rates over health expenditure and non-positive average marginal tax rates over income.

Suggested Citation

  • VALLETTA, Giacomo, 2012. "Health, fairness and taxation," CORE Discussion Papers 2012016, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  • Handle: RePEc:cor:louvco:2012016
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    References listed on IDEAS

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    1. Fleurbaey,Marc & Maniquet,François, 2011. "A Theory of Fairness and Social Welfare," Cambridge Books, Cambridge University Press, number 9780521715348, April.
    2. Philippe Chone & Guy Laroque, 2010. "Negative Marginal Tax Rates and Heterogeneity," American Economic Review, American Economic Association, vol. 100(5), pages 2532-2547, December.
    3. Boadway, Robin & Jacquet, Laurence, 2008. "Optimal marginal and average income taxation under maximin," Journal of Economic Theory, Elsevier, vol. 143(1), pages 425-441, November.
    4. Fleurbaey, Marc & Suzumura, Kotaro & Tadenuma, Koichi, 2005. "Arrovian aggregation in economic environments: how much should we know about indifference surfaces?," Journal of Economic Theory, Elsevier, vol. 124(1), pages 22-44, September.
    5. Robin Boadway & Maurice Marchand & Pierre Pestieau & María del Mar Racionero, 2002. "Optimal Redistribution with Heterogeneous Preferences for Leisure," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 4(4), pages 475-498, October.
    6. Chone, Philippe & Laroque, Guy, 2005. "Optimal incentives for labor force participation," Journal of Public Economics, Elsevier, vol. 89(2-3), pages 395-425, February.
    7. Luft, Harold S, 1975. "The Impact of Poor Health on Earnings," The Review of Economics and Statistics, MIT Press, vol. 57(1), pages 43-57, February.
    8. Fleurbaey, Marc & Schokkaert, Erik, 2009. "Unfair inequalities in health and health care," Journal of Health Economics, Elsevier, vol. 28(1), pages 73-90, January.
    9. Fleurbaey, Marc, 2012. "Fairness, Responsibility, and Welfare," OUP Catalogue, Oxford University Press, number 9780199653591.
    10. Blomqvist, Ake & Horn, Henrik, 1984. "Public health insurance and optimal income taxation," Journal of Public Economics, Elsevier, vol. 24(3), pages 353-371, August.
    11. James M. Poterba, 1996. "Government Intervention in the Markets for Education and Health Care: How and Why?," NBER Chapters,in: Individual and Social Responsibility: Child Care, Education, Medical Care, and Long-Term Care in America, pages 277-308 National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Aitor Calo-Blanco, 2017. "Health and fairness with other-regarding preferences," Working Papers 17.04, Universidad Pablo de Olavide, Department of Economics.
    2. repec:spr:series:v:8:y:2017:i:2:d:10.1007_s13209-016-0153-6 is not listed on IDEAS
    3. 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).
    4. MANIQUET, François, 2014. "Social ordering functions," CORE Discussion Papers 2014051, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Fleurbaey M. & Valletta G., 2013. "Fair optimal tax with endogenous productivities," Research Memorandum 024, Maastricht University, Graduate School of Business and Economics (GSBE).
    6. BHATTACHARYA, Sudipto & D’ASPREMONT, Claude & GURIEV, Sergei & SEN, Debapriya, 2012. "Cooperation in R&D: patenting, licensing and contracting," CORE Discussion Papers 2012055, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    7. Aitor Calo-Blanco, 2015. "Health, responsibility and taxation with a fresh start," Working Papers 15.06, Universidad Pablo de Olavide, Department of Economics.

    More about this item

    Keywords

    income tax; health subsidies; endogenous skills; policy evaluation; optimal tax; fairness;

    JEL classification:

    • D63 - Microeconomics - - Welfare Economics - - - Equity, Justice, Inequality, and Other Normative Criteria and Measurement
    • H20 - Public Economics - - Taxation, Subsidies, and Revenue - - - General

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