The Bequest Tax as Long-Term Care Insurance

27 Pages Posted: 29 Aug 2012

See all articles by Johann K. Brunner

Johann K. Brunner

University of Linz - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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

Brunner, Johann K., The Bequest Tax as Long-Term Care Insurance (July 31, 2012). CESifo Working Paper Series No. 3901, Available at SSRN: https://ssrn.com/abstract=2137560 or http://dx.doi.org/10.2139/ssrn.2137560

Johann K. Brunner (Contact Author)

University of Linz - Department of Economics ( email )

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A-4040 Linz
Austria
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CESifo (Center for Economic Studies and Ifo Institute for Economic Research)

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Munich, DE-81679
Germany

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