Social long-term care insurance with two-sided altruism

This paper studies the design of a social long-term care (LTC) insurance when altruism is two-sided. The laissez-faire solution is not efficient, unless there is perfect altruism. Under full information, the first-best can be decentralized by a linear subsidy on informal aid, a linear tax on bequests when the parent is dependent and state specific lump-sum transfers which provide insurance. We also study a second-best scheme comprising a LTC benefit, a payroll tax on children[U+05F3]s earnings and an inheritance tax. This scheme redistributes resources across individuals and between the states of nature and the tax on children[U+05F3]s labor enhances informal care to compensate for the children[U+05F3]s possible less than full altruism. © 2015 University of Venice.