Death and Taxes: The Impact of Income Taxation on Health

Abstract:     
More progressive taxes, holding tax liability constant, generate disincentives for health investment by decreasing benefits for additional working time and, thus, decreasing returns to health. On the other hand, progressive taxation may induce individuals to invest more in health for the purpose of extending their working life, because lifetime maximization could imply less work per period but more working years. I identify the effect of progressively through differences in labor income tax rates among states. I find that the former effect dominates, more progressive taxes are negatively correlated with health, and argue that neither selection effects nor reverse causality can explain this result.

Keywords: Health Investment, Labor Income Tax, Tax Progressivity

JEL Classifications: I12, I18, H24, D91

Working Paper Series