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Longevity, health spending, and pay-as-you-go pensions

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  • PESTIEAU, Pierre
  • PONTHIERE, Grégory
  • SATO, Motohiro

Abstract

This paper aims at investigating whether or not a utilitarian social planner should subsidize longevity-enhancing expenditures in an economy with a pay-as-you-go pension system. For that purpose, a two-period overlapping-generations model is developed, in which the probability of survival to the second period can be raised by private health spending. Focusing on the steady state, it is shown that the sign of the optimal subsidy on health expenditures tends to be negative when the replacement ratio is sufficiently large. Moreover, the optimal health subsidy is also shown to depend significantly on individual preferences and on the longevity production process.

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File URL: http://dx.doi.org/10.1628/001522108X312041
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Bibliographic Info

Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number -2029.

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Handle: RePEc:cor:louvrp:-2029

Note: In : FinanzArchiv/Public Finance Analysis, 64(1), 1-18, 2008
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  1. Rosa Aísa & Fernando Pueyo, 2004. "Endogenous longevity, health and economic growth: a slow growth for a longer life?," Economics Bulletin, AccessEcon, vol. 9(3), pages 1-10.
  2. Sinn, Hans-Werner, 2004. "The pay-as-you-go pension system as fertility insurance and an enforcement device," Munich Reprints in Economics 938, University of Munich, Department of Economics.
  3. Bhattacharya, Joydeep & Qiao, Xue, 2005. "Public and Private Expenditures on Health in a Growth Model," Staff General Research Papers 12378, Iowa State University, Department of Economics.
  4. Robert Fenge & Volker Meier, 2004. "Are Family Allowances and Fertility-related pensions Siamese Twins?," CESifo Working Paper Series 1157, CESifo Group Munich.
  5. Gregory Ponthiere, 2006. "Growth, Longevity and Public Policy," CESifo Working Paper Series 1780, CESifo Group Munich.
  6. EECKHOUDT, Louis & PESTIEAU, Pierre, 2007. "Fear of ruin and longevity enhancing investment," CORE Discussion Papers 2007032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  7. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521806428, October.
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