The Bequest Tax as Long-Term Care Insurance
27 Pages Posted: 29 Aug 2012
Date Written: July 31, 2012
Abstract
I study a model of a representative individual who has a motive for leaving bequests and is at risk of needing long-term care in old age. I assume - as is typical for OECD countries - that the individual is not fully insured against this risk. Moreover, at realization the individual is unable to adapt labor supply or consumption; then expenditures for long-term care result in a one-to-one reduction of the estate. In this situation a tax on bequests provides insurance and its introduction causes a smaller deadweight loss than an income or consumption tax. I also characterize the optimal tax and transfer system in this model.
Keywords: estate tax, long-term care insurance
JEL Classification: H210, H240, I130
Suggested Citation: Suggested Citation