Insurance and Corrective Taxes in the Health Care Market

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This paper examines government policy to improve efficiency when there are competitive health care and insurance markets, but neither insurers nor government can observe prevention activities of individuals which reduce the probability of ill health. If prevention and health care are taxable, prevention should be subsidized, but health care may be subsidized or taxed depending on whether it is a Hicksian substitute or complement for prevention. If prevention is not taxable, health care should not be taxed or subsidized. These results are compared to Arnott and Stiglitz (1986) for the case where there is public rather than private insurance.
Original languageUndefined/Unknown
Pages (from-to)99-120
Number of pages22
JournalJournal of economics-Zeitschrift fur nationalokonomie
Publication statusPublished - 1986


  • Fiscal Theory Empirical Studies Illustrating Fiscal Theory (3212) Economics of Health (including medical subsidy programs) (9130) Theory of Uncertainty and Information (0261) National Taxation, Revenue, and Subsidies (3230)

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