Health, Growth and Welfare: Why Put Public Money on Medical R&D?
AbstractThis paper aims at providing a simple economic framework to address a somewhat neglected question of economic policy, namely the optimal share of investments in medical R&D in total public spending. In or- der to capture the long-run impact of tax-financed medical R&D on the growth rate, we develop an endogenous growth model in the spirit of Barro . The model focuses on the optimal sharing of public re- sources between consumption and (non-health) investment, medical R&D and other health expenditures. It emphasizes the key role played by the public health-related R&D in enhancing economic growth and welfare in the long run. According to our numerical simulations - based on pru- dential assumptions about the economic impact of medical R&D - a one billion euros permanent reallocation of public spending in favor of medical R&D, would induce about €4 billions GDP increase the first year and a GDP discounted benefit of about €60 billions over a decade. Then, in economies characterized by productive externalities of R&D, the govern- ment is recommended to invest substantially more in medical R&D in order to implement an optimal policy.
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Bibliographic InfoPaper provided by Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne in its series Documents de recherche with number 08-18.
Length: 39 pages
Date of creation: 2008
Date of revision:
public health; medical R&D; public spending; endogenous growth;
Find related papers by JEL classification:
- H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
- H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
- I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
- O31 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
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