Nber Working Paper Series the Effect of Tax Preferences on Health Spending

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. John F. Cogan Hoover Institution Stanford University Stanford, CA 94305 [email protected] R. Glenn Hubbard Graduate School of Business Columbia University, 101 Uris Hall 3022 Broadway New York, NY 10027 and NBER [email protected] Daniel P. Kessler Graduate School of Business Stanford University 518 Memorial Way, Room L241 Stanford, CA 94305 and NBER [email protected]