Evaluating long-term care policy options, taking the family seriously Articles
Overview
published in
- REVIEW OF ECONOMIC STUDIES Journal
publication date
- April 2018
start page
- 766
end page
- 809
issue
- 2
volume
- 85
Digital Object Identifier (DOI)
full text
International Standard Serial Number (ISSN)
- 0034-6527
Electronic International Standard Serial Number (EISSN)
- 1467-937X
abstract
- We propose a dynamic non-cooperative framework for long-term-care (LTC) decisions of families and use it to evaluate LTC policy options for the U.S. We first document the importance of informal caregiving and economic determinants of care arrangements. We then build a heterogeneous-agents model with imperfectly-altruistic overlapping generations to account for the patterns we find. A key innovation is the availability of informal care (IC), which is determined through intra-family bargaining. This opens up a new margin in response to policy and allows for informal insurance through home-production of care. Our calibrated model captures the observed care arrangements well. We study the implications of non-means-tested IC and formal care (FC) subsidies as well as changes to means-tested Medicaid. We find that IC responds strongly to these policies. An IC subsidy substantially reduces reliance on Medicaid, while the reduction of tax revenues due to lower labour supply by caregivers is modest. There are large welfare gains from a combination of IC and FC subsidies, even when combined with a reduction of the Medicaid program
Classification
keywords
- long-term care; altruism; dynamic games