LAUSR

In this paper, we study how elderly individuals adjust their informal long-term care utilization to changes in the provision of formal care. Despite this is crucial to design effective policies of formal elderly care, empirical evidence is scant due to the lack of credible identification strategies to account for the endogeneity of formal care. We propose a novel instrument, an index that captures individuals' eligibility status for the long-term care programs implemented in the region of residence. Our estimates, which are robust to a number of different specifications, suggest that higher formal care provision would lead to an increase in informal care utilization as well. In the context of current theoretical economic model of care use, this result points to the existence of a substantial unmet demand of care among older people in Europe.