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Health Care Reform: Separating Insurance from Income Redistribution

  • Friedrich Breyer
  • Andreas Haufler

Most systems of health care financing in EU member states currently include elements of income redistribution. The paper analyzes the effects of shifting this kind of redistribution to the tax system and argues that this reform could create two types of efficiency gains. On the expenditure side, it would facilitate the adoption of more incentive-compatible insurance contracts, for example through the introduction of copayment schemes. On the revenue side, income redistribution through the general tax system is likely to imply a shadow price of public funds that is lower than if redistribution is carried out through wage-based insurance contributions.

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File URL: http://www.diw.de/documents/publikationen/73/diw_01.c.38507.de/dp205.pdf
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Paper provided by DIW Berlin, German Institute for Economic Research in its series Discussion Papers of DIW Berlin with number 205.

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Length: 24 p.
Date of creation: 2000
Date of revision:
Handle: RePEc:diw:diwwpp:dp205
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  1. Cochrane, John H, 1995. "Time-Consistent Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 103(3), pages 445-73, June.
  2. Helmuth Cremer & Pierre Pestieau, 1996. "Redistributive taxation and social insurance," International Tax and Public Finance, Springer, vol. 3(3), pages 281-295, July.
  3. Wagstaff, Adam & van Doorslaer, Eddy & van der Burg, Hattem & Calonge, Samuel & Christiansen, Terkel & Citoni, Guido & Gerdtham, Ulf-G & Gerfin, Mike & Gross, Lorna & Hakinnen, Unto, 1999. "Equity in the finance of health care: some further international comparisons1," Journal of Health Economics, Elsevier, vol. 18(3), pages 263-290, June.
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  6. Peter Sørensen, 1994. "From the global income tax to the dual income tax: Recent tax reforms in the Nordic countries," International Tax and Public Finance, Springer, vol. 1(1), pages 57-79, February.
  7. Atkinson, A. B. & Stiglitz, J. E., 1976. "The design of tax structure: Direct versus indirect taxation," Journal of Public Economics, Elsevier, vol. 6(1-2), pages 55-75.
  8. Deaton, Angus, 1979. "Optimally uniform commodity taxes," Economics Letters, Elsevier, vol. 2(4), pages 357-361.
  9. Hans-Werner Sinn, 1996. "Social insurance, incentives and risk taking," International Tax and Public Finance, Springer, vol. 3(3), pages 259-280, July.
  10. Richard Arnott & Joseph Stiglitz, 1982. "Moral Hazard and Optimal Commodity Taxation," Working Papers 500, Queen's University, Department of Economics.
  11. Blomqvist, Ake & Horn, Henrik, 1984. "Public health insurance and optimal income taxation," Journal of Public Economics, Elsevier, vol. 24(3), pages 353-371, August.
  12. Jean-Charles Rochet, 1991. "Incentives, Redistribution and Social Insurance," The Geneva Risk and Insurance Review, Palgrave Macmillan, vol. 16(2), pages 143-165, December.
  13. Davide Fiaschi, 1996. "Fiscal policies and growth," Working Papers 261, Dipartimento Scienze Economiche, Universita' di Bologna.
  14. Petretto, Alessandro, 1999. "Optimal social health insurance with supplementary private insurance," Journal of Health Economics, Elsevier, vol. 18(6), pages 727-745, December.
  15. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-77, June.
  16. Sijbren Cnossen, 1999. "Taxing Capital Income in the Nordic Countries: A Model for the European Union?," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 56(1), pages 18-50, March.
  17. Pauly, Mark V, 1974. "Overinsurance and Public Provision of Insurance: The Roles of Moral Hazard and Adverse Selection," The Quarterly Journal of Economics, MIT Press, vol. 88(1), pages 44-62, February.
  18. Jacob Frenkel & Assaf Razin, 1996. "Fiscal Policies and Growth in the World Economy," MIT Press Books, The MIT Press, edition 3, volume 1, number 0262561042, June.
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