Do healthcare tax credits help poor-health individuals on low incomes?
- 126 Downloads
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.
- 1.Albarea, A., Bernasconi, M., Di Novi, C., Marenzi, A., Rizzi, D., Zantomio, F.: Accounting for tax evasion profiles and tax expenditures in microsimulation modelling. The BETAMOD model for personal income taxes in Italy. Int. J. Microsimul. 8, 99–136 (2015)Google Scholar
- 2.Atella, V., Borgonovi, E., Collicelli, C., Kopinska, J., Lecci, F., Maietta, F.: Crisi economica, diseguaglianze nell’accesso ai servizi sanitari ed effetti sulla salute delle persone in Italia. I Quaderni della Fondazione Farmafactoring, No. 01.2015, (2015)Google Scholar
- 5.Balestra, C., Sultan, J.: Home sweet home: the determinants of residential satisfaction and its relation with well-being. OECD Statistics Directorate Working Papers, No. 5, (2013)Google Scholar
- 7.Benzeval, M., Judge, K., Whitehead, M.: Tackling inequalities in health: an agenda for action. King’s Fund, London (1995)Google Scholar
- 19.Dirindin, N.: Chi paga per la salute degli italiani?. Il Mulino, Bologna (1996)Google Scholar
- 22.Fattore, G., Mariotti, G., Rebba, V.: Review of waiting times policies: country case studies, Italy. In: Siciliani, L., Borowitz, M., Moran, V. (eds.) Waiting time policies in the health sector—what works?, Chapter 9, OECD Health Policy Studies (2013)Google Scholar
- 28.ISTAT: Le differenze nel livello dei prezzi al consumo tra i capoluoghi delle regioni italiane. (http://www.istat.it/it/archivio/6279) (2010)
- 29.ISTAT: Health for all. (http://www.istat.it/it/archivio/14562) (2015)
- 31.Kaplow, L.: The income tax as insurance: the casualty loss and medical expense deductions and the exclusion of the medical insurance premiums. NBER Working Paper, No. 3723, (1991)Google Scholar
- 35.Liu, S., Chollet, D.: Price and income elasticity of the demand for health insurance and health care services: a critical review of the literature. http://www.mathematica-mpr.com/publications/pdfs/priceincome.pdf (2006)
- 37.Ministry of Economy and Finance: (http://www.dt.tesoro.it/en) (2010 and 2015)
- 39.O’Donnell, O., van Doorslaer, E., Wagstaff, A., Lindelow, M.: Analyzing health equity using household survey data: a guide to techniques and their implementation. World Bank Publications, No. 434, Washington (2008)Google Scholar
- 40.OECD, Health Statistics: FOCUS on health spending. Available at http://www.oecd.org/els/health-systems/health-data.htm (2015)
- 41.Prasad, N.: Policies for redistribution: the use of taxes and social transfers. International Institute for Labour Studies Discussion Paper, No. 194 (2008)Google Scholar
- 45.Tyson, J.: Reforming tax expenditures in Italy: what, why, and how?. IMF Working Paper, January 2014 (2014)Google Scholar
- 46.Toder, E., Harris, B.H., Lim, K.: Distributional effects of tax expenditures in the United States. In: Philipps, L., Brooks, N., Li, J. (eds.) Tax expenditures: state of the art. Canadian Tax Foundation, Toronto (2011)Google Scholar
- 47.Toder, E., Baneman, D.: Distributional effects of individual income tax expenditures: an update. Urban-Brookings Tax Policy Center, February 2 (2012)Google Scholar
- 49.Vyas, S., Kumaranayake, L.: Constructing socioeconomic status indices: how to use principal components analysis. Adv. Access Publ. 9, 459–468 (2006)Google Scholar