NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

The Effect of Tax Preferences on Health Spending

John F. Cogan, R. Glenn Hubbard, Daniel P. Kessler

NBER Working Paper No. 13767*
Issued in January 2008
NBER Program(s):   HC

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In this paper, we estimate the effect of the tax preference for insurance on health spending based on the Medical Expenditure Panel Surveys from 1996-2005. We use the fact that Social Security taxes are only levied on earnings below a statutory threshold to identify the tax preference's impact. Because employer-sponsored health insurance premiums are excluded from Social Security payroll taxes, workers who earn just below the Social Security tax threshold receive a larger tax preference for health insurance than workers who earn just above it. We find a significant effect of the tax preference, consistent with previous research.

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