Sickness absence and health care in an economic federation

David Granlund ()
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David Granlund: Department of Economics, Umeå University, Postal: S 901 87 Umeå, Sweden

No 665, Umeå Economic Studies from Umeå University, Department of Economics

Abstract: This paper addresses vertical fiscal externalities in a model where the state governments provide health care and the federal government provides a sickness benefit. Both levels of government tax labor income and policy decisions affect labor income as well as participation in the labor market. The results show that the vertical externality affecting the state governments' policy decisions can be either positive or negative depending on, among other things, the wage elasticity of labor supply and the marginal product of expenditure on health care. Moreover, it is proved that the vertical fiscal externality will not vanish by assigning all powers of taxation to the states.

Keywords: economic federation; moral hazard; vertical fiscal externalities; sickness absence; sickness benefits (search for similar items in EconPapers)
JEL-codes: H21 H42 H77 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-hea and nep-pbe
Date: 2005-10-03, Revised 2007-04-13
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