Ruhr Economic Papers

Ruhr Economic Papers #813

Long-Run Consequences of Informal Elderly Care and Implications of Public Long-Term Care Insurance

by Thorben Korfhage

RWI, 07/2019, 10 S./p., 8 Euro, ISBN 978-3-86788-942-1 DOI: 10.4419/86788942

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Abstract

In this paper, I estimate a dynamic structural model of labor supply, retirement, and informal care supply,
incorporating labor market frictions and the German tax and benefit system. I find that informal elderly
care has adverse and persistent effects on labor market outcomes and therefore negatively affects lifetime earnings, future pension benefits, and individuals’ well-being. These consequences of caregiving are heterogeneous and depend on age, previous earnings, and institutional regulations. Policy simulations
suggest that, even though fiscally costly, public long-term care insurance can offset the personal costs of
caregiving to a large extent – in particular for low-income individuals.

JEL-Classification: I18, I38, J14, J22,

Keywords: Long-term care; informal care; long-term care insurance; labor supply; retirement; pension benefits; structural model

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