Long Term Care and the Role of In kind Transfers. Economic Analysis and Empirical Investigation

This chapter develops a simple economic model to analyze the role of in kind transfers, which can be interpreted as professional care to elderly people with severe disabilities. It is assumed that these people live with their children (in working age) who provide them health care: the amount of health care is determined by free public provision, by additional professional care bought in the market or by informal care directly given by the children in terms of leisure. The choice between professional and informal care depends on the wage rate and on the ``productivity'' of leisure in providing health care as compared to professional care. Within this model the effect of an increase of in kind transfers is examined combined with an equal cut in cash transfers: this can be interpreted as a generalized cut in pensions whose {\it{ratio}} could be found in a sort of intragenerational solidarity between elderly people with and without severe disabilities. The chapter deals with different alternatives and the conditions assuring a benefit to families with elderly people with severe disabilities, which is such to more than compensate the loss imposed to healthy elderly people. Moreover, the conditions assuring a budget surplus are derived: these stem from the incentive such policies give to increase labour supply diverting leisure from informal care. In order to confirm some of the assumptions of the economic model, we exploit microdata coming from different sources (primarily SHARE and EUSILC) to provide a statistical insight. We investigate to what extent available official statistics help in detecting various aspects of elderly care and estimate a statistical model for the probability of turning to professional home care, conditional on individual and household characteristics.