Optimal savings and heallth spending over the life cycle
AbstractThis paper investigates the relationship between saving and health spending in a two-period overlapping generations economy. Individuals work in the first period of life and live in retirement in old age. Health spending is an activity that increases the quality of life and longevity. Empirical evidence shows that both health spending and saving behave as luxury goods but their behavior differs markedly according to the level of per capita GDP. The share of saving on GDP has a concave shape with respect to per capita GDP, whereas the share of health spending on GDP increases more than proportionally with respect to per capita GDP. Their ratio is nonlinear with respect to income, i.e. first increasing and then decreasing. This ratio, in the proposed model, is equal to the ratio between the elasticity of the utility function with respect to saving and the elasticity of the utility function with respect to health.
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Bibliographic InfoPaper provided by CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY in its series CHILD Working Papers with number wp09_09.
Length: 22 pages
Date of creation: Feb 2009
Date of revision:
Intertemporal Choice; Health Spending; Adult Mortality; Saving;
Other versions of this item:
- Tamara Fioroni, 2010. "Optimal savings and health spending over the life cycle," The European Journal of Health Economics, Springer, vol. 11(4), pages 355-365, August.
- D91 - Microeconomics - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
- I12 - Health, Education, and Welfare - - Health - - - Health Production
- E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
This paper has been announced in the following NEP Reports:
- NEP-AGE-2009-09-19 (Economics of Ageing)
- NEP-ALL-2009-09-19 (All new papers)
- NEP-DGE-2009-09-19 (Dynamic General Equilibrium)
- NEP-HEA-2009-09-19 (Health Economics)
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