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Department of Economics, Umeň University Umeň Economic Studies, Department of Economics, Umeň University

No 665:
Sickness absence and health care in an economic federation

David Granlund ()

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; (follow links to similar papers)

JEL-Codes: H21; H42; H77; (follow links to similar papers)

29 pages, October 3, 2005, Revised April 13, 2007

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