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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

The 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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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19856.

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Date of creation: Jan 2014
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Publication status: published as 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:nbr:nberwo:19856

Note: AG EFG HC HE PE
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  1. Robert E. Hall & Charles I. Jones, 2005. "The value of life and the rise in health spending," Proceedings, Federal Reserve Bank of San Francisco, Federal Reserve Bank of San Francisco.
  2. 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, American Economic Association, vol. 29(2), pages 471-522, June.
  3. 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, Springer, vol. 31(2), pages 129-162, September.
  4. Adrienne M. Lucas, 2010. "Malaria Eradication and Educational Attainment: Evidence from Paraguay and Sri Lanka," American Economic Journal: Applied Economics, American Economic Association, American Economic Association, vol. 2(2), pages 46-71, April.
  5. Hoyt Bleakley, 2007. "Disease and Development: Evidence from Hookworm Eradication in the American South," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 122(1), pages 73-117, 02.
  6. Ehrlich, Isaac & Lui, Francis T, 1991. "Intergenerational Trade, Longevity, and Economic Growth," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(5), pages 1029-59, October.
  7. Ehrlich, Isaac, 2000. "Uncertain lifetime, life protection, and the value of life saving," Journal of Health Economics, Elsevier, Elsevier, vol. 19(3), pages 341-367, May.
  8. 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, Elsevier, vol. 16(5), pages 789-806, October.
  9. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, Elsevier, vol. 22(1), pages 3-42, July.
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