Tax Credits and the Use of Medical Care

Michael Smart and Mark Stabile

No 9855, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Several recent proposals have advocated using the income tax system to collect user fees to help fund the health care system. While there is a considerable amount of research investigating both how individuals respond to tax incentives for employer provided health insurance and on the effects of user fees payable at the point of service on the use of health care services, there is limited evidence on how individuals respond to tax incentives when these are not realized until taxes are paid. This paper uses existing exemptions in the Canadian tax code that allow individuals to deduct the cost of health care or health insurance from their taxable income in order to identify the tax price elasticity of demand for health care when price changes are realized at the end of the tax year. Our results suggest that despite not realizing the tax benefit at the time of purchase, individuals are quite responsive to changes in the tax price of health care. Our elasticity estimates for a wide range of health care products are well within the range of traditional price elasticity estimates, including in particular our estimates for prescription drugs. We also find some evidence that suggests individuals trade off risk sharing through traditional insurance companies with risk sharing through the tax code. That is, as the tax price of health care decreases, individuals spend more on health care, but spend less on health insurance.

JEL-codes: H2 I1 (search for similar items in EconPapers)
Date: 2003-07
New Economics Papers: this item is included in nep-hea
Note: EH PE
References: View references in EconPapers View complete reference list from CitEc
Citations:

Published as Smart, Michael and Mark Stabile. "Tax Credits, Insurance, And The Use Of Medical Care," Canadian Journal of Economics, 2005, v38(2,May), 345-365.

Downloads: (external link)
http://www.nber.org/papers/w9855.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:9855

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w9855

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().