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Health, fairness and taxation

  • VALLETTA, Giacomo

    ()

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

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.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers with number 2012016.

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Date of creation: 09 May 2012
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Handle: RePEc:cor:louvco:2012016
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  1. Fleurbaey, Marc, 2012. "Fairness, Responsibility, and Welfare," OUP Catalogue, Oxford University Press, number 9780199653591, March.
  2. 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.
  3. 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.
  4. Fleurbaey, Marc & Suzumura, Kotaro & Tadenuma, Koichi, 2002. "Arrovian Aggregation in Economic Environments: How Much Should We Know About Indifference Surfaces?," Discussion Papers 2002-10, Graduate School of Economics, Hitotsubashi University.
  5. Philippe Choné & Guy Laroque, 2009. "Negative marginal tax rates and heterogeneity," IFS Working Papers W09/12, Institute for Fiscal Studies.
  6. James M. Poterba, 1994. "Government Intervention in the Markets for Education and Health Care: How and Why?," NBER Working Papers 4916, National Bureau of Economic Research, Inc.
  7. 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.
  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.
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