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Endogenous altruism, redistribution, and long term care

  • Cremer, Helmuth
  • Gahvari, Firouz
  • Pestieau, Pierre

This paper studies public provision of long term care insurance in a world in which family assistance is (i) uncertain and (ii) endogenous depending on the time parents spend raising their children. Public benefits will be paid in case of disability but cannot be combined with self-insurance or family aid. The benefits are provided equally to all recipients and financed by a proportional payroll tax. The paper shows that tax distortions imply that full insurance is undesirable. It characterizes the optimal tax and identifies the elements that determine its size. Of crucial importance are the extent of under-insurance, the effect of the tax on the probability of altruism, the distortionary effect of the tax, and, with wage heterogeneity, the covariance between the social mar- ginal utility of lifetime income and (i) earnings (positive effect) and (ii) the probability of altruism default (negative effect).

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Paper provided by Institut d'Économie Industrielle (IDEI), Toulouse in its series IDEI Working Papers with number 768.

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Date of creation: Mar 2013
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Publication status: Published in The B. E. Journal of Economic Analysis & Policy (Advances), vol.�14, n°2, juillet 2013, p.�499-524.
Handle: RePEc:ide:wpaper:26995
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  1. Laurence J. Kotlikoff & Avia Spivak, 1979. "The Family as an Incomplete Annuities Market," NBER Working Papers 0362, National Bureau of Economic Research, Inc.
  2. Brown, Jeffrey R. & Finkelstein, Amy, 2007. "Why is the market for long-term care insurance so small?," Journal of Public Economics, Elsevier, vol. 91(10), pages 1967-1991, November.
  3. Chakrabarti, Subir & Lord, William & Rangazas, Peter, 1993. "Uncertain Altruism and Investment in Children," American Economic Review, American Economic Association, vol. 83(4), pages 994-1002, September.
  4. 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).
  5. Cox, Donald & Stark, Oded, 2005. "On the demand for grandchildren: tied transfers and the demonstration effect," Journal of Public Economics, Elsevier, vol. 89(9-10), pages 1665-1697, September.
  6. Barbara Lipszyc & Etienne Sail & Ana Xavier, 2012. "Long-term care: need, use and expenditure in the EU-27," European Economy - Economic Papers 469, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
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