Inequality in life expectancy: perception and consequences for redistribution policy
Economic Theory
Final Report Abstract
This project investigates the policy implications of socioeconomic differences in life expectancy. We approach this question from an empirical political-economy perspective that surveys voters' beliefs and views, and from a theoretical normative perspective based on the workhorse model of optimal redistribution. The empirical part of this project documents the perceived socioeconomic differences in life expectancy in the German and U.S. populations using a large-scale representative survey. We find that the life expectancy of the poor is underestimated more than that of the rich, leading to exaggerated perceptions of inequality. Notably, this result holds across different socio-demographic groups and in both countries. Using an information treatment, which informs a random half of the sample in each country about the actual socioeconomic inequality in life expectancy, we show a strong causal effect of perceptions about socioeconomic inequality in life expectancy on the concerns about the issue. Providing information effectively reduces the gap in concerns between those who overestimate and those who underestimate the inequality. However, the information treatment has a limited impact on policy demand, as the majority of respondents support policies that address the life expectancy of the poor, regardless of their prior misperceptions. In particular, respondents support measures to enhance access to health care, citing it as their top priority to improve the low life expectancy of the poor. The theoretical part of this project introduces life expectancy inequality into a tractable Mirrleesian life-cycle model and characterizes optimal redistribution policies using theory and calibration. A positive association between life expectancy and income counteracts the wellknown static pattern of declining marginal utility. As a result, the mechanical value of redistribution is reduced at all income levels. Moreover, the pension wedge becomes a novel determinant of optimal taxation, motivating relatively lower optimal tax rates for low earners and relatively higher optimal tax rates for high earners. Quantitatively, the effects of the mechanical value of redistribution dominate, and the optimal marginal tax rates fall by up to 10 percentage points when life expectancy is heterogeneous. In summary, both approaches show that socioeconomic differences in life expectancy have strong implications for public policy. Given the widespread support for policy action revealed by the survey, policymakers have some flexibility in designing appropriate reforms and can benefit from models of optimal policy design. The results of the theoretical project provide an important first step towards this goal.
Publications
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Die Wahrnehmung sozialer Ungleichheit in der Lebenserwartung und wie diese die Politikpräferenzen (nicht) beeinflusst. ifo Schnelldienst, 77(04), 43-48
Jessen, L. J., Köhne, S., Nüß, P. & Ruhose, J.
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Redistribution with Unequal Life Expectancy. CESifo Working Paper No. 10684, CESifo, Munich
Koehne, S.
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Socioeconomic Inequality in Life Expectancy: Perception and Policy Demand. CESifo Working Paper No. 10940, CESifo, Munich
Jessen, L. J., Koehne, S., Nüß, P. & Ruhose, J.
