Indirect Fiscal Effects of Long‐Term Care Insurance*

Informal care by close family members is the main pillar of most long‐term care systems. However, due to demographic ageing, the need for long‐term care is expected to increase while the informal care potential is expected to decline. From a budgetary perspective, informal care is often viewed as a cost‐saving alternative to subsidised formal care. This view, however, neglects that many family carers are of working age and face the difficulty of reconciling care and paid work, which might entail sizeable indirect fiscal effects related to forgone tax revenues, lower social security contributions and higher transfer payments. In this paper, we use a structural model of labour supply and the choice of care arrangement to quantify these indirect fiscal effects of informal care. Moreover, based on the model, we discuss the fiscal effects related to non‐take‐up of formal care.