Optimal non-linear taxation and social insurance with ex ante moral hazard

Should the government include equity concerns in its health insurance policies? I study a model where individuals dier in productivity and cost of preventive care. These types are unobservable to government, introducing an equity-eciency trade o and a moral hazard problem. Solving this model yields three new insights. First, I show that the government should dierentiate eective tax rates between healthy and ill individuals. Second, I show that the government can dierentiate eective tax rates through the provision of an income- dependent social insurance policy. Third, I examine the robustness of some of previous results in the literature and show they are not fully robust to a dierent timing of the labour supply decision.