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Health, Growth and Welfare: Why Put Public Money on Medical R&D?

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Author Info

  • Stefano Bosi

    (EQUIPPE (University of Lille 1) and EPEE (University of Evry))

  • Thierry Laurent

    (EPEE (Center for Economic Policy Studies), University of Evry)

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    Abstract

    This 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 [1990]. 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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    File URL: http://epee.univ-evry.fr/RePEc/2008/08-18.pdf
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    Bibliographic Info

    Paper 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.

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    Length: 39 pages
    Date of creation: 2008
    Date of revision:
    Handle: RePEc:eve:wpaper:08-18

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    Web page: http://epee.univ-evry.fr
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    Related research

    Keywords: public health; medical R&D; public spending; endogenous growth;

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    References

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    1. Stephen Turnovsky, 1998. "Fiscal Policy, Elastic Labor Supply, and Endogenous Growth," Discussion Papers in Economics at the University of Washington 0068, Department of Economics at the University of Washington.
    2. Mankiw, N Gregory & Romer, David & Weil, David N, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 407-37, May.
    3. Charles I. Jones, 2007. "The Weak Link Theory of Economic Development," Working Papers 042007, Hong Kong Institute for Monetary Research.
    4. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    5. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages S71-102, October.
    6. Zon,A.H.,van & Muysken,J., 1997. "Health, education and endogenous growth," Research Memorandum 006, Maastricht University, Maastricht Economic Research Institute on Innovation and Technology (MERIT).
    7. Andres Erosa & Tatyana Koreshkova & Diego Restuccia, 2006. "On the aggregate and distributional implications of productivity differences across countries," Working Paper 06-02, Federal Reserve Bank of Richmond.
    8. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
    9. Ananth Seshadri & Rodolfo Manuelli, 2005. "Human Capital and the Wealth of Nations," 2005 Meeting Papers 56, Society for Economic Dynamics.
    10. van Zon, Adriaan & Muysken, Joan, 2001. "Health and endogenous growth," Journal of Health Economics, Elsevier, vol. 20(2), pages 169-185, March.
    11. Bloom, David E. & Canning, David & Sevilla, Jaypee, 2004. "The Effect of Health on Economic Growth: A Production Function Approach," World Development, Elsevier, vol. 32(1), pages 1-13, January.
    12. María Arrazola & José de Hevia & Marta Risueño & José Félix Sanz Sanz, 2005. "A proposal to estimate human capital depreciation: some evidence for Spain," Hacienda Pública Española, IEF, vol. 172(1), pages 9-22, June.
    13. Maria Arrazola & Jose de Hevia, 2004. "More on the estimation of the human capital depreciation rate," Applied Economics Letters, Taylor & Francis Journals, vol. 11(3), pages 145-148.
    14. Nikos Benos, 2005. "Fiscal Policy and Economic Growth: Empirical Evidence from OECD," University of Cyprus Working Papers in Economics 1-2005, University of Cyprus Department of Economics.
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