The political economy of long-term care

•Political economy model explains public provision of LTC and income redistribution.•Families differ in labor market productivity and LTC needs.•A structure induced equilibrium always exists in our two dimensional issue space.•The equilibrium explains negative association of income inequality and LTC.•Demographic change may lower public LTC spending and increase informal care giving.

We build a two-dimensional political economy model to explain the provision and financing of long-term care and income redistribution. Voting agents differ in need and income opening up two conflicts: one sets families with disabled parents, who are in favor of a public long-term care program, against the ones without such parents who oppose public financing. The other sets the poor against the rich with the former preferring heavier income taxation than the latter. We show that a structure induced equilibrium always exists and that it is unique if informal care is provided in equilibrium. The equilibrium not only explains the negative association of income inequality and long-term care financing but also allows predictions about how demographic change might impact long-term care arrangements and expenses.