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Optimal linear taxation under endogenous longevity

Author

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  • LEROUX, Marie-Louise
  • PESTIEAU, Pierre
  • PONTHIERE, Grégory

Abstract

This paper studies the optimal linear tax-transfer policy in an economy where agents differ 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-specific 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 effect 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.
(This abstract was borrowed from another version of this item.)
(This abstract was borrowed from another version of this item.)

Suggested Citation

  • LEROUX, Marie-Louise & PESTIEAU, Pierre & PONTHIERE, Grégory, 2011. "Optimal linear taxation under endogenous longevity," LIDAM Reprints CORE 2268, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvrp:2268
    DOI: 10.1007/s00148-010-0304-1
    Note: In : Journal of Population Economics, 24(1), 213-237, 2011
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    1. Helmuth Cremer & Jean‐Marie Lozachmeur & Pierre Pestieau, 2010. "Collective Annuities and Redistribution," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 12(1), pages 23-41, February.
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    5. EECKHOUDT, Louis & PESTIEAU, Pierre, 2007. "Fear of ruin and longevity enhancing investment," LIDAM Discussion Papers CORE 2007032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    6. Helmuth Cremer & Philippe De Donder & Darío Maldonado & Pierre Pestieau, 2012. "Taxing Sin Goods and Subsidizing Health Care," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(1), pages 101-123, March.
    7. Torben Andersen & Joydeep Bhattacharya, 2011. "On myopia as rationale for social security," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 47(1), pages 135-158, May.
    8. Pierre Pestieau & Gregory Ponthiere & Motohiro Sato, 2008. "Longevity, Health Spending, and Pay-as-you-Go Pensions," FinanzArchiv: Public Finance Analysis, Mohr Siebeck, Tübingen, vol. 64(1), pages 1-18, March.
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    10. Broome, John, 2006. "Weighing Lives," OUP Catalogue, Oxford University Press, number 9780199297702.
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    Citations

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    Cited by:

    1. Marie-Louise Leroux & Pierre Pestieau & Grégory Ponthière, 2008. "Should we subsidize longevity?," Working Papers halshs-00586236, HAL.
    2. Leroux, Marie-Louise & Ponthiere, Gregory, 2013. "Utilitarianism and unequal longevities: A remedy?," Economic Modelling, Elsevier, vol. 30(C), pages 888-899.
    3. Pierre Pestieau & Gregory Ponthiere, 2012. "The Public Economics of Increasing Longevity," Hacienda Pública Española / Review of Public Economics, IEF, vol. 200(1), pages 41-74, March.
    4. Pierre Pestieau & Gregory Ponthiere, 2014. "Policy Implications of Changing Longevity," CESifo Economic Studies, CESifo Group, vol. 60(1), pages 178-212.
    5. Pierre-André Jouvet & Pierre Pestieau & Gregory Ponthiere, 2010. "Longevity and environmental quality in an OLG model," Journal of Economics, Springer, vol. 100(3), pages 191-216, July.
    6. Dávila, Julio & Leroux, Marie-Louise, 2015. "Efficiency in overlapping generations economies with longevity choices and fair annuities," Journal of Macroeconomics, Elsevier, vol. 45(C), pages 363-383.
    7. FLEURBAEY, Marc & LEROUX, Marie - Louise & PONTHIERE, Gregory, 2010. "Compensating the dead? Yes we can!," LIDAM Discussion Papers CORE 2010066, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    8. Julio Davila & Marie-Louise Leroux, 2009. "On the fiscal treatment of life expectancy related choices," Post-Print halshs-00423933, HAL.
    9. Pestieau, Pierre & Ponthiere, Gregory, 2016. "Longevity Variations And The Welfare State," Journal of Demographic Economics, Cambridge University Press, vol. 82(2), pages 207-239, June.
    10. Chu-chuan Cheng & Hsun Chu, 2018. "Optimal policies for sin goods and health care: Tax or subsidy?," International Tax and Public Finance, Springer;International Institute of Public Finance, vol. 25(2), pages 412-429, April.
    11. Fleurbaey, Marc & Leroux, Marie-Louise & Ponthiere, Gregory, 2014. "Compensating the dead," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 28-41.
    12. Carlotta Balestra & Davide Dottori, 2012. "Aging society, health and the environment," Journal of Population Economics, Springer;European Society for Population Economics, vol. 25(3), pages 1045-1076, July.
    13. Stelter, Robert, 2014. "Over-aging - Are present human populations too old?," VfS Annual Conference 2014 (Hamburg): Evidence-based Economic Policy 100334, Verein für Socialpolitik / German Economic Association.
    14. Torben M. Andersen & Marias H. Gestsson, 2010. "Longevity, Growth and Intergenerational Equity - The Deterministic Case," Economics wp52, Department of Economics, Central bank of Iceland.
    15. Stelter, Robert, 2016. "Over-aging — Are present-day human populations too old?," Mathematical Social Sciences, Elsevier, vol. 82(C), pages 116-143.

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    More about this item

    JEL classification:

    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health

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