Equilibrium Health Spending and Population Aging in a Model of Endogenous Growth: Will the GDP Share of Health Spending Keep Rising?
AbstractThe apparently unrelenting growth in the GDP-share of health spending (SHS) has been a perennial issue of policy concern. Does an equilibrium limit exist? The issue has been left open in recent dynamic models which take income growth and population aging as given. We view these variables as endogenously determined within an overlapping-generations, human-capital-based endogenous-growth model, where a representative parent makes all life-cycle consumption and investment decisions, and life and health protection are subject to diminishing returns. Our prototype model, allowing for both quantity and quality of life as desired goods, yields equilibrium upper bounds for SHS. Our calibrated simulations also account for observed trends in reproductive choices, population aging, life expectancy, and economic growth. The analysis offers new insights about factors that drive long-term trends in aging and health spending and establishes a direct relation between health investments at young age and the equilibrium, steady-state rate of economic growth.
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Bibliographic InfoPaper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 7928.
Length: 53 pages
Date of creation: Jan 2014
Date of revision:
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Other versions of this item:
- 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.
- Isaac Ehrlich & Yong Yin, 2014. "Equilibrium Health Spending and Population Aging in a Model of Endogenous Growth - Will the GDP Share of Health Spending Keep Rising?," NBER Working Papers 19856, National Bureau of Economic Research, Inc.
- I1 - Health, Education, and Welfare - - Health
- I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
- O4 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
- E24 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Employment; Unemployment; Wages; Intergenerational Income Distribution
This paper has been announced in the following NEP Reports:
- NEP-AGE-2014-02-08 (Economics of Ageing)
- NEP-ALL-2014-02-08 (All new papers)
- NEP-DGE-2014-02-08 (Dynamic General Equilibrium)
- NEP-GRO-2014-02-08 (Economic Growth)
- NEP-MAC-2014-02-08 (Macroeconomics)
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