Fiscal Incidence When Family Structure Matters

Population aging has led to demands for subsidization of home care for the elderly, and many countries now provide such help. In this article, we investigate analytically and with simulation the fiscal incidence of a cost-sharing price subsidy for home care. Our focus is on incidence and benefit shifting between elderly parents and their children who provide time or money. We first derive incidence indexes on a budgetary and on a welfare basis. We then simulate our indexes using Canadian data in order to understand how incidence actually depends on basic family structure, the nature of altruism, and other key factors. Finally, we simulate the implications for fiscal incidence of a switch from a price subsidy to a lump-sum allowance that allows the family somewhat greater freedom of choice. The article concludes with reflections on the general state of expenditure incidence analysis.