Do healthcare tax credits help poor-health individuals on low incomes?
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In several countries, personal income tax permits tax credits for out-of-pocket healthcare expenditure. Tax credits benefit taxpayers at all income levels by reducing their net tax liability and modify the price of out-of-pocket expenditure. To the extent that consumer demand is price elastic, they may influence the amount of eligible healthcare expenditure for which taxpayers may claim a credit. These effects influence, in turn, income distributions and 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 alleviate health inequality. In this paper, we study the potential effects that tax credits for health expenses may have on income-related inequality in health status with reference to the Italian institutional setting. The analysis is performed using a tax-benefit microsimulation model that reproduces the personal income tax and incorporates taxpayers’ behavioral responses to changes in tax credit rate. Our results suggest that the current healthcare tax credit design tends to favor the richest part of the population.
KeywordsPersonal income tax Health-related tax credit Health inequality
JEL ClassificationI10 I14 H24
An earlier draft of this paper was presented at the annual meeting of the Italian Public Economic Associations, Lecce, Italy, and at the annual meeting of the Italian Health Economics Association, Bologna, Italy. The authors wish to thank the conference participants for their detailed and helpful comments. The authors in particular wish to thank Andrea Albarea for his assistance in gathering and processing the data. The paper benefitted from comments from Michele Bernasconi, Enrica Croda, Gianmaria Martini and Francesca Zantomio. The usual disclaimer applies.
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