Optimal linear taxation under endogenous longevity

Abstract

This paper studies the optimal linear tax-transfer policy in an economy where agents di¤er in productivity and in genetic background, and where longevity depends on health spending and genes. It is shown that, if agents internalize imperfectly the impact of genes and health spending on longevity, the utilitarian social optimum can be decentralized with type-speci…c redistributive lump sum transfers and Pigouvian taxes correcting for agents's myopia (leading to undersaving and underinvestment in health), and for their incapacity to perceive the e¤ect of health spending on the resource constraint of the economy (causing overinvestment in health). The second-best problem is also examined under linear taxation instruments. Our main result is that it may be optimal to tax health spending, in particular under a complementarity of genes and health spending in the production of longevity.

Longevity, Growth, and Intergenerational Equity: The Deterministic Case

“…While this it is a natural starting point to clarify the basic issues involved, it is also clear that changes in mortality rates and thus longevity are driven by both individual (life style, eating habits, housing etc) and public decisions (health care). A small but growing literature is exploring the consquences of endogenizing longevity via these channels (see Philipson and Becker (1998), Leroux et al (2008)). It is an obvious agenda for future research to endogenize mortality rates Finally, a small-open economy assumption has been adopted with respect to financial market.…”

“…The age effect (2.18) says that the value of time as working decreases more than the value of time as retired, that is, the gain in the value of time as retired relative to working increases with age 21 . The longevity effect (2.19) says that increased longevity tends to increase the value of time more as working than retired, that is, the gain in value of time of retiring at a given age decreases with longevity 22 . The latter captures a health effect in the sense that higher longevity is associted with better health reducing the disutility from work at a given age, ceteris paribus.…”

Optimal policies for sin goods and health care: Tax or subsidy?

“…Leroux et al (2011), who examine whether the government should subsidize health spending, and …nd that under certain conditions it may be optimal to tax health spending instead of subsidizing it. In these papers, however, the issue of sin goods is absent, and health investment a¤ects welfare by enhancing longevity, while in our present paper health investment is used to mitigate the negative e¤ects of unhealthy goods.…”

Aging society, health and the environment

“…A two-input longevity function is considered byFinlay (2006) andLeroux et al (2011) who, in addition to health spending, have respectively a health base-level and an amount of genes, which are however exogenous in either model. With respect to healthspending, the same conditions given in the text are assumed.…”