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Equilibrium Health Spending and Population Aging in a Model of Endogenous Growth: Will the GDP Share of Health Spending Keep Rising?

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  • Isaac Ehrlich
  • Yong Yin

Abstract

Existing forecasts of a continuously rising income share of health spending (SHS) take per capita income growth and population aging as given. We develop a human capital-based endogenous growth model treating these variables as endogenously determined. In this private-economy setting, SHS has equilibrium upper bounds due to rising shadow prices of life and health protection. Our calibrated simulations reproduce observed trends in fertility and life expectancy and account for advances in life protection and health maintenance technologies. The model identifies the major forces driving the dynamic path of SHS and uncovers a direct link between health investment at young age and the equilibrium rate of economic growth.

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  • Isaac Ehrlich & Yong Yin, 2013. "Equilibrium Health Spending and Population Aging in a Model of Endogenous Growth: Will the GDP Share of Health Spending Keep Rising?," Journal of Human Capital, University of Chicago Press, vol. 7(4), pages 411-447.
    • Handle: RePEc:ucp:jhucap:doi:10.1086/675640
    DOI: 10.1086/675640
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    1. Casper Worm Hansen, 2013. "Health and Development: A Neoclassical Perspective," Journal of Human Capital, University of Chicago Press, vol. 7(3), pages 274-295.
    2. Isaac Ehrlich & Yong Yin, 2005. "Explaining Diversities in Age-Specific Life Expectancies and Values of Life Saving: A Numerical Analysis," Journal of Risk and Uncertainty, Springer, vol. 31(2), pages 129-162, September.
    3. Isaac Ehrlich, 2009. "The Mystery of Human Capital as Engine of Growth, or Why the US Became the Economic Superpower in the 20th Century," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(56), pages 41-93, October -.
    4. Robert E. Hall & Charles I. Jones, 2007. "The Value of Life and the Rise in Health Spending," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(1), pages 39-72.
    5. Hoyt Bleakley, 2007. "Disease and Development: Evidence from Hookworm Eradication in the American South," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 122(1), pages 73-117.
    6. Ehrlich, Isaac & Kim, Jinyoung, 2005. "Endogenous fertility, mortality and economic growth: Can a Malthusian framework account for the conflicting historical trends in population?," Journal of Asian Economics, Elsevier, vol. 16(5), pages 789-806, October.
    7. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
    8. Ehrlich, Isaac & Lui, Francis T, 1991. "Intergenerational Trade, Longevity, and Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1029-1059, October.
    9. Juster, F Thomas & Stafford, Frank P, 1991. "The Allocation of Time: Empirical Findings, Behavioral Models, and Problems of Measurement," Journal of Economic Literature, American Economic Association, vol. 29(2), pages 471-522, June.
    10. Jonathan Gruber, 2006. "A Tax-Based Estimate of the Elasticity of Intertemporal Substitution," NBER Working Papers 11945, National Bureau of Economic Research, Inc.
    11. Isaac Ehrlich & Jinyoung Kim, 2007. "Social Security and Demographic Trends: Theory and Evidence from the International Experience," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 10(1), pages 55-77, January.
    12. Isaac Ehrlich & Jinyoung Kim, 2005. "Social Security, Demographic Trends, and Economic Growth: Theory and Evidence from the International Experience," NBER Working Papers 11121, National Bureau of Economic Research, Inc.
    13. Michael R. Haines, 1994. "Estimated Life Tables for the United States, 1850-1900," NBER Historical Working Papers 0059, National Bureau of Economic Research, Inc.
    14. Adrienne M. Lucas, 2010. "Malaria Eradication and Educational Attainment: Evidence from Paraguay and Sri Lanka," American Economic Journal: Applied Economics, American Economic Association, vol. 2(2), pages 46-71, April.
    15. Ehrlich, Isaac, 2000. "Uncertain lifetime, life protection, and the value of life saving," Journal of Health Economics, Elsevier, vol. 19(3), pages 341-367, May.
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    Cited by:

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    2. Mercedes Gumbau Albert, 2021. "The impact of health status and human capital formation on regional performance: Empirical evidence," Papers in Regional Science, Wiley Blackwell, vol. 100(1), pages 123-139, February.
    3. Rodrigo R. Soares & Rudi Rocha & Michel Szklo, 2021. "American Delusion: Life Expectancy and Welfare in the US from an International Perspective," Working Papers 13, Instituto de Estudos para Políticas de Saúde.
    4. Kai Hong & Peter A. Savelyev & Kegon T. K. Tan, 2020. "Understanding the Mechanisms Linking College Education with Longevity," Journal of Human Capital, University of Chicago Press, vol. 14(3), pages 371-400.
    5. Cheng Chen & Shin-Yi Chou & Robert J. Thornton, 2015. "The Effect of Household Technology on Weight and Health Outcomes among Chinese Adults: Evidence from China's "Home Appliances Going to the Countryside" Policy," Journal of Human Capital, University of Chicago Press, vol. 9(3), pages 364-401.
    6. Isaac Ehrlich & Yun Pei, 2020. "Human Capital as Engine of Growth: The Role of Knowledge Transfers in Promoting Balanced Growth within and across Countries," Asian Development Review, MIT Press, vol. 37(2), pages 225-263, September.
    7. Ehrlich, Isaac & Yin, Yong, 2018. "The problem of the uninsured," Research in Economics, Elsevier, vol. 72(1), pages 147-168.
    8. Bennhoff, Frederik H. & García, Jorge Luis & Leaf, Duncan Ermini, 2023. "The Dynastic Benefits of Early Childhood Education: Participant Benefits and Family Spillovers," IZA Discussion Papers 16370, Institute of Labor Economics (IZA).
    9. Frank R. Lichtenberg, 2014. "The Impact of Pharmaceutical Innovation on Disability Days and the Use of Medical Services in the United States, 1997-2010," Journal of Human Capital, University of Chicago Press, vol. 8(4), pages 432-480.
    10. Xin Cao & Peng Li & Shi Li & Heng Zhang & Mengni Qin, 2022. "The Belt and Road Initiative, Public Health Expenditure and Economic Growth: Evidence from Quasi-Natural Experiments," IJERPH, MDPI, vol. 19(23), pages 1-18, December.
    11. Anne Mason & Idaira Rodriguez Santana & María José Aragón & Nigel Rice & Martin Chalkley & Raphael Wittenberg & Jose-Luis Fernandez, 2019. "Drivers of health care expenditure: Final report," Working Papers 169cherp, Centre for Health Economics, University of York.
    12. Alberto Bucci, 2015. "Product Proliferation, Population, and Economic Growth," Journal of Human Capital, University of Chicago Press, vol. 9(2), pages 170-197.

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    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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