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Sickness absence and health care in an economic federation

Author

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  • Granlund, David

    (Department of Economics, Umeå University)

Abstract

This paper addresses vertical fiscal externalities in a model where the state governments provide health care and the federal government provides a sickness benefit. Both levels of government tax labor income and policy decisions affect labor income as well as participation in the labor market. The results show that the vertical externality affecting the state governments' policy decisions can be either positive or negative depending on, among other things, the wage elasticity of labor supply and the marginal product of expenditure on health care. Moreover, it is proved that the vertical fiscal externality will not vanish by assigning all powers of taxation to the states.

Suggested Citation

  • Granlund, David, 2005. "Sickness absence and health care in an economic federation," Umeå Economic Studies 665, Umeå University, Department of Economics, revised 13 Apr 2007.
    • Handle: RePEc:hhs:umnees:0665
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    References listed on IDEAS

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    1. Dahlby, Bev & Wilson, Leonard S., 2003. "Vertical fiscal externalities in a federation," Journal of Public Economics, Elsevier, vol. 87(5-6), pages 917-930, May.
    2. Viscusi, W Kip & Evans, William N, 1990. "Utility Functions That Depend on Health Status: Estimates and Economic Implications," American Economic Review, American Economic Association, vol. 80(3), pages 353-374, June.
    3. Hansson, Ingemar & Stuart, Charles, 1987. "The suboptimality of local taxation under two-tier fiscal federalism," European Journal of Political Economy, Elsevier, vol. 3(3), pages 407-411.
    4. Johnson, William R, 1988. "Income Redistribution in a Federal System," American Economic Review, American Economic Association, vol. 78(3), pages 570-573, June.
    5. Michael Keen, 1998. "Vertical Tax Externalities in the Theory of Fiscal Federalism," IMF Staff Papers, Palgrave Macmillan, vol. 45(3), pages 454-485, September.
    6. Brown, Sarah & Sessions, John G, 1996. "The Economics of Absence: Theory and Evidence," Journal of Economic Surveys, Wiley Blackwell, vol. 10(1), pages 23-53, March.
    7. Donna B. Gilleskie, 1998. "A Dynamic Stochastic Model of Medical Care Use and Work Absence," Econometrica, Econometric Society, vol. 66(1), pages 1-46, January.
    8. Marilyn R. Flowers, 1988. "Shared Tax Sources in a Leviathan Model of Federalism," Public Finance Review, , vol. 16(1), pages 67-77, January.
    9. Thomas Aronsson & Magnus Wikström, 2002. "Optimal Taxes and Transfers in a Multilevel Public Sector," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 58(2), pages 158-166, February.
    10. Boadway, Robin & Marchand, Maurice & Vigneault, Marianne, 1998. "The consequences of overlapping tax bases for redistribution and public spending in a federation," Journal of Public Economics, Elsevier, vol. 68(3), pages 453-478, June.
    11. Robin Boadway & Michael Keen, 1996. "Efficiency and the optimal direction of federal-state transfers," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 3(2), pages 137-155, May.
    12. Thomas Aronsson & Magnus Wikstrom, 2003. "Optimal taxation and risk-sharing arrangements in an economic federation," Oxford Economic Papers, Oxford University Press, vol. 55(1), pages 104-120, January.
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    Cited by:

    1. David Granlund, 2010. "The effect of health care expenditure on sickness absence," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 11(6), pages 555-568, December.
    2. Granlund, David, 2007. "The effect of health care expenditure on sickness absence," Umeå Economic Studies 701, Umeå University, Department of Economics, revised 13 Apr 2007.

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    More about this item

    Keywords

    economic federation; moral hazard; vertical fiscal externalities; sickness absence; sickness benefits;
    All these keywords.

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H42 - Public Economics - - Publicly Provided Goods - - - Publicly Provided Private Goods
    • H77 - Public Economics - - State and Local Government; Intergovernmental Relations - - - Intergovernmental Relations; Federalism

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