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Endogenous differential mortality, non-contractible effort and non-linear taxation

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  • LEROUX, Marie-Louise

Abstract

This paper studies a problem of non linear taxation when individuals have different longevities resulting from a non-monetary effort (like exercising). We first present the laissez-faire and the first best. Like Becker and Philipson (1998), we find that the laissez-faire level of effort is too high compared with the first best, because individuals do not internalize the impact of survival on the return of their savings. We also claim that because of its non-monetary form, effort is not contractible. That is why we modify our framework and assume, for the rest of the paper, that effort is determined by the individual while the social planner only allocates consumptions. It turns out that, under full information, a tax on the return of annuitized savings is desirable for both types. This tax is higher for the low-survival individual. Under asymmetric information, the low-survival individual still faces a tax while the high-survival individual might now face a positive or negative tax on annuities. Interestingly, our results depend on the value of life.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • LEROUX, Marie-Louise, 2011. "Endogenous differential mortality, non-contractible effort and non-linear taxation," LIDAM Reprints CORE 2286, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2286
    DOI: 10.1007/s10797-010-9147-7
    Note: In : International Tax and Public Finance, 18(1), 56-73, 2011
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    Cited by:

    1. Justina Klimaviciute, 2020. "Long-term care and myopic couples," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 27(1), pages 77-102, February.
    2. Dávila, Julio & Leroux, Marie-Louise, 2015. "Efficiency in overlapping generations economies with longevity choices and fair annuities," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 363-383.
    3. Marie-Louise Leroux & Pierre Pestieau & Grégory Ponthière, 2015. "Longévité différentielle et redistribution : enjeux théoriques et empiriques," L'Actualité Economique, Société Canadienne de Science Economique, vol. 91(4), pages 465-497.

    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior

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