Long-term care expenditures in the Netherlands have risen substantially over the last 40 years. Only a part of this growth can be attributed to the ageing of the population. Rising long-term care costs threaten the sustainability of Dutch public finances: additional public revenues are needed to cover the additional spending. In this paper, we evaluate four alternative policies to finance the anticipated additional growth in long-term care above the rate implied by projected demographic growth. We analyse these financing alternatives using a macro model, focusing on the long-term effects on economic growth and on the redistribution of costs and benefits between birth cohorts. We find a relatively large intergenerational redistribution of lifetime net benefits for a pay-as-you-go system and for an immediate one-time increase of the premium rate, while a cohort-specific savings system or a pensioner tax both have relatively small intergenerational effects. Labour supply and private consumption decline in all four financing alternatives, although the size and timing of these effects differ.

Additional Metadata
Keywords fiscal sustainability, H23, H51, I10, long-term care, population ageing
Persistent URL dx.doi.org/10.1111/j.1475-5890.2017.12137, hdl.handle.net/1765/101900
Journal Fiscal Studies
Citation
Wouterse, B, & Smid, B. (Bert). (2017). How to Finance the Rising Costs of Long-Term Care: Four Alternatives for the Netherlands. Fiscal Studies, 38(3), 369–391. doi:10.1111/j.1475-5890.2017.12137