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Federal Subsidization and Optimal State Medicaid Provision

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Abstract

This paper quantifies the effect of federal subsidies on state Medicaid provision in the United States. The U.S. federal government matches each state at least one dollar for each dollar that the state spends on Medicaid. This subsidy creates an incentive for states to provide a more generous Medicaid program. We measure the effect of the subsidy by constructing a multi- regional, heterogeneous-agent, dynamic general equilibrium model with incomplete insurance markets and calibrating it to the U.S. economy. In the model, state governments take the federal subsidy as given and choose the Medicaid policy that maximizes the welfare of its citizens. We compare the results of the benchmark model to an economy with the subsidy removed and find that states rely almost entirely on the federal subsidy to finance their Medicaid programs.

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  • Jorge Barro & Stephen Barnes, 2014. "Federal Subsidization and Optimal State Medicaid Provision," Departmental Working Papers 2014-05, Department of Economics, Louisiana State University.
  • Handle: RePEc:lsu:lsuwpp:2014-05
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    File URL: http://bus.lsu.edu/McMillin/Working_Papers/pap14_05.pdf
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    6. Huggett, Mark, 1996. "Wealth distribution in life-cycle economies," Journal of Monetary Economics, Elsevier, vol. 38(3), pages 469-494, December.
    7. Gouveia, Miguel & Strauss, Robert P., 1994. "Effective Federal Individual Tax Functions: An Exploratory Empirical Analysis," National Tax Journal, National Tax Association;National Tax Journal, vol. 47(2), pages 317-339, June.
    8. David M. Cutler & Jonathan Gruber, 1996. "Does Public Insurance Crowd out Private Insurance?," The Quarterly Journal of Economics, Oxford University Press, vol. 111(2), pages 391-430.
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    1. Jorge Barro & Stephen Barnes, 2016. "Federal Subsidization and State Medicaid Provision," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 21, pages 29-45, July.

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