Double Crowding-Out Effects of Means-Tested Public Provision for Long-Term Care
Abstract
:1. Introduction
2. The Model
2.1. The Parent
2.2. The Child
3. Predictions of the Model
Policy Measures | Lenient Means Testing | Stringent Means Testing | ||
---|---|---|---|---|
Private Saving | Informal Care | Private Saving | Informal Care | |
ds < 0 | de < 0 | ds < 0 | de < 0 | |
1. Increased cost sharing (dα > 0, ∂r / ∂α > 0) | ? | yes | yes | ? |
2. More stringent means testing (dβ > 0, ∂r / ∂β > 0) | yes | yes | yes | yes |
3. Increased taxation of inheritance (dt > 0) | yes | yes | yes | yes |
Exogenous influences | ||||
4. Higher initial wealth of the parent () | ? | ? | yes | ? |
5. Higher relative price of LTC services (dp > 0) | ? | ? | ? | ? |
6. Higher nominal rate of interest (di > 0) | ? | ? | no a,b | yes c |
7. Higher initial wealth of the child () | No ª | No ª | No ª | No ª |
8. Higher opportunity cost of the child () | yes | yes | yes | yes |
4. Conclusion and Outlook
- 1See also [6] for an analysis in terms of unstable outcomes.
- 2This paper abstracts from private LTC insurance on the grounds that the market for it is very small, especially in countries that have implemented public LTC insurance.
- 3Empirical evidence suggests a negative correlation between inheritance taxation and intergenerational transfers (see e.g., [9]).
- 4Contrary to the first period, the second-period utility function has wealth and not consumption as its argument in order to model the bequest motive of the parent while taking into account the fact that the bequest serves as an instrument for influencing child behavior. Introducing second-period consumption as a decision variable would complicate the analysis without producing important insights.
- 5In the case of multiple siblings, it seems realistic to assume that the parent allocates, as far as he or she can, the bequest to the child who provides care.
- 6Convexity reflects progressiveness of the cost-sharing schedule.
- 7Means-testing in the United States (but also in Germany and Switzerland, e.g.,) includes a “look-back” period for assessing parental wealth and/or a limit on inter vivos bequests during such a period designed to avoid spend-down by parents, qualifying them for a public subsidy.
- 8Stringency of means testing refers to the gradient of cost sharing w.r.t. wealth. Increased stringency therefore meansthat this gradient increases.
- 9For simplicity, we abstract from the fact that in some countries (notably Germany), the child may be called upon to contribute to the cost of LTC, resulting in a deduction from z0 that depends on z0 (means testing) and p. Also, the model is in terms of one parent and one child; otherwise, the optimal allocation of both bequest and caring effort between the surviving spouse and the children would have to be determined.
Acknowledgments
Author Contributions
Appendix
Conflicts of Interest
References
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Courbage, C.; Zweifel, P. Double Crowding-Out Effects of Means-Tested Public Provision for Long-Term Care. Risks 2015, 3, 61-76. https://doi.org/10.3390/risks3010061
Courbage C, Zweifel P. Double Crowding-Out Effects of Means-Tested Public Provision for Long-Term Care. Risks. 2015; 3(1):61-76. https://doi.org/10.3390/risks3010061
Chicago/Turabian StyleCourbage, Christophe, and Peter Zweifel. 2015. "Double Crowding-Out Effects of Means-Tested Public Provision for Long-Term Care" Risks 3, no. 1: 61-76. https://doi.org/10.3390/risks3010061