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Endogenous differential mortality, non-contractible effort and non-linear taxation

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Leroux, Marie-Louise [UCL]

This paper studies a problem of non-linear taxation when individuals have different longevities resulting from a non-monetary effort (like exercising). We first present the laissez-faire and the first best. Like Becker and Philipson (J. Polit. Econ. 106(3):551-573, 1998), we find that the laissez-faire level of effort is too high compared with the first best, because individuals do not internalize the impact of survival on the return of their savings. We also claim that because of its non-monetary form, effort is not contractible. That is why we modify our framework and assume, for the rest of the paper, that effort is determined by the individual while the social planner only allocates consumptions. It turns out that, under full information, a tax on the return of annuitized savings is desirable for both types. This tax is higher for the low-survival individual. Under asymmetric information, the low-survival individual still faces a tax while the high-survival individual might now face a positive or negative tax on annuities. Interestingly, our results depend on the value of life.

Document type Article de périodique (Journal article) – Article de recherche
Access type Accès interdit
Publication date 2010
Language Anglais
Journal information "International Tax and Public Finance" - Vol. 18, no. 1, p. 56-73 (2011)
Peer reviewed yes
Publisher Springer New York LLC ((United States) New York)
issn 0927-5940
Affiliation UCL - EUEN/CORE - Center for operations research and econometrics
Keywords Annuities ; Effort ; Differential mortality ; Non-linear taxation ; Value of life
Links
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Bibliographic reference Leroux, Marie-Louise. Endogenous differential mortality, non-contractible effort and non-linear taxation. In: International Tax and Public Finance, Vol. 18, no. 1, p. 56-73 (2011)
Permanent URL http://hdl.handle.net/2078.1/73628