Do Healthcare Tax Credits Help Poor Healthy Individuals on Low Incomes?

28 Pages Posted: 14 Jul 2016

See all articles by Cinzia Di Novi

Cinzia Di Novi

Ca Foscari University of Venice

Anna Marenzi

Ca' Foscari University of Venice, Department of Economics

Dino Rizzi

Ca Foscari University of Venice - Dipartimento di Economia

Date Written: June 27, 2016

Abstract

In several countries, personal income tax permits tax credits for out-of-pocket healthcare expenditures. Tax credits produce two effects on taxpayers’ disposable income. On the one hand, they benefit taxpayers at all income levels by reducing their net tax liability; on the other hand, they modify the price of out-of-pocket expenditure and, to the extent that consumer demand is price elastic, they may influence the amount of eligible health care expenditure for which taxpayers may claim a credit. These two effects influence, in turn, income redistribution and may affect taxpayers’ health status and therefore income-related inequality in health. Redistributive consequences of tax credits have been widely investigated; however, little is known about the ability of tax credits to ensure a more equitable distribution of healthcare expenditure and, consequently, to alleviate health inequality. In this paper, we study the potential effects that tax credits for health expenses may have on health-related inequality with reference to the Italian institutional setting. The analysis is performed using a tax-benefit microsimulation model which reproduces the personal income tax and incorporates taxpayers’ behavioural responses to changes in tax credit rate. Our results suggest that a healthcare tax credit design that does not rely on income, like the one implemented in the Italian personal income tax, is not effective in improving equity in health and tends to favour the richest part of the population.

Keywords: Personal Income Tax, Health-Related Tax Credit, Health Inequality

JEL Classification: I10, I14, H24

Suggested Citation

Di Novi, Cinzia and Marenzi, Anna and Rizzi, Dino, Do Healthcare Tax Credits Help Poor Healthy Individuals on Low Incomes? (June 27, 2016). University Ca' Foscari of Venice, Dept. of Economics Research Paper Series No. 16. Available at SSRN: https://ssrn.com/abstract=2808970

Cinzia Di Novi (Contact Author)

Ca Foscari University of Venice ( email )

Dorsoduro 3246
Venezia, 30123
Italy

Anna Marenzi

Ca' Foscari University of Venice, Department of Economics ( email )

Cannaregio 873
Venice, 30121
Italy

Dino Rizzi

Ca Foscari University of Venice - Dipartimento di Economia ( email )

Cannaregio 873
Venice, 30121
Italy

HOME PAGE: http://www.unive.it/persone/rizzid

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