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Growth and Welfare Effects of Health Care in Knowledge Based Economies

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  • Michael Kuhn
  • Klaus Prettner

Abstract

We consider an endogenous growth model with Blanchard-Yaari-type overlapping generations that is built around four sectors: final and intermediate goods production, an R&D sector and a health care sector. Health care serves to lower mortality and morbidity, the latter being related to participation/productivity in the labor market. We show that, regardless of its finance, the impact of health care on economic growth crucially depends on whether or not it increases employment in the R&D sector. Even if an increasing health care sector reduces the (effective) labor available for production and R&D, it may still fuel R&D employment and economic growth if the increase in aggregate wealth that comes with expanding longevity raises the capital intensity in the final goods sector to an extent that labor shifts to alternative employment in R&D. While numerical assessment indicates that the health sectors of the Euro area economies are too large from a growth perspective, we can establish mild conditions under which an expansion of health care beyond the growth-maximizing level constitutes a Pareto-improvement.

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Bibliographic Info

Paper provided by Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna in its series Working Papers with number 1206.

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Length: 47 pages
Date of creation: Aug 2012
Date of revision:
Handle: RePEc:vid:wpaper:1206

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Web page: http://www.oeaw.ac.at/vid/

Related research

Keywords: Endogenous growth; mortality; (Blanchard) overlapping generations; health care; research and development; sectoral composition;

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Cited by:
  1. Gustav Feichtinger & Alexia Prskawetz & Andrea Seidl & Christa Simon & Stefan Wrzaczek, 2013. "Do Egalitarian Societies Boost Fertility?," Working Papers 1302, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
  2. Maria Rita Testa & Stuart Basten, 2012. "Have Lifetime Fertility Intentions Declined During the “Great Recession”?," Working Papers 1209, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.

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