Endogenous altruism, redistribution, and long-term care

Helmuth Cremer, Firouz Gahvari, Pierre Pestieau

Research output: Contribution to journalArticle

Abstract

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 marginal utility of lifetime income and (i) earnings (positive effect) and (ii) the probability of altruism default (negative effect).

Original languageEnglish (US)
Pages (from-to)499-524
Number of pages26
JournalB.E. Journal of Economic Analysis and Policy
Volume14
Issue number2
DOIs
StatePublished - Apr 1 2014

Keywords

  • Endogenous probability
  • Long-term care
  • Opting out
  • Public insurance
  • Uncertain altruism

ASJC Scopus subject areas

  • Economics and Econometrics
  • Economics, Econometrics and Finance (miscellaneous)

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