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Long Term Care: The State, the Market and the FamilyPierre PestieauUniversity of Liege - Research Center on Public and Population Economics; Centre for Economic Policy Research (CEPR); CESifo (Center for Economic Studies and Ifo Institute for Economic Research) Motohiro SatoHitotsubashi University - Faculty of Economics December 2004 CORE Discussion Paper No. 2004/82 Abstract: In this paper we study the optimal design of a long term care policy in a setting that includes three types of care to dependent parents: public nursing homes, financial assistance by children and assistance in time by children. The instruments are public nursing homes and subsidies to aiding children, both financed by a flat tax on earnings. The only source of heterogeneity is children's productivity. Parents can influence their children by leaving them gifts before they know whether or not they will need long term care, yet knowing the productivity of the children. We show that the quality of nursing homes and the level of tax-transfer depend on their effect on gifts, the distribution of wages and the various inequalities in consumption. We also consider the possibility of private insurance.
Number of Pages in PDF File: 24 Keywords: long term care, altruism, bequests JEL Classification: D64, H55, I118 working papers seriesDate posted: April 15, 2005Suggested CitationContact Information
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