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The Effect of Tax Preferences on Health Spending

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  • John F. Cogan
  • R. Glenn Hubbard
  • Daniel P. Kessler

Abstract

In this paper, we estimate the effect of the tax preference for health insurance on health care spending using data from the Medical Expenditure Panel Surveys from 1996-2005. We use the fact that Social Security taxes are only levied on earnings below a statutory threshold to identify the impact of the tax preference. Because employer-sponsored health insurance premiums are excluded from Social Security payroll taxes, workers who earn just below the Social Security tax threshold receive a larger tax preference for health insurance than workers who earn just above it. We find a significant effect of the tax preference, consistent with previous research.

Suggested Citation

  • John F. Cogan & R. Glenn Hubbard & Daniel P. Kessler, 2008. "The Effect of Tax Preferences on Health Spending," NBER Working Papers 13767, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:13767
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    References listed on IDEAS

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    1. Jack, William & Sheiner, Louise, 1997. "Welfare-Improving Health Expenditure Subsidies," American Economic Review, American Economic Association, vol. 87(1), pages 206-221, March.
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    3. Manning, Willard G, et al, 1987. "Health Insurance and the Demand for Medical Care: Evidence from a Randomized Experiment," American Economic Review, American Economic Association, vol. 77(3), pages 251-277, June.
    4. Eichner, Matthew J, 1998. "The Demand for Medical Care: What People Pay Does Matter," American Economic Review, American Economic Association, vol. 88(2), pages 117-121, May.
    5. Amy Finkelstein, 2007. "The Aggregate Effects of Health Insurance: Evidence from the Introduction of Medicare," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(1), pages 1-37.
    6. Feldstein, Martin S, 1973. "The Welfare Loss of Excess Health Insurance," Journal of Political Economy, University of Chicago Press, vol. 81(2), pages 251-280, Part I, M.
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    More about this item

    JEL classification:

    • H2 - Public Economics - - Taxation, Subsidies, and Revenue
    • I1 - Health, Education, and Welfare - - Health

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