Tax preferences for fringe benefits and workers' eligibility for employer health insurance

In this paper, I estimate the effect of the tax preference for employer-provided health insurance on the probability that an employee will be eligible for health insurance at work. I instrument for marginal tax rates with state-level state income tax rates and I control for unobservable state effects that could be correlated with the state income tax instrument by comparing the estimated tax effect on employer-provided health insurance, to the tax effect on sick leave, a fringe benefit that does not enjoy any tax advantage. The size of the tax effect on health insurance eligibility is positive, as predicted, and is both statistically and economically significant. (C) 2000 Elsevier Science S.A.. All rights reserved.