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Private and Public Health Expenditures in an Endogenous Growth Model with Inflation Targeting

  • Rangan Gupta

    (University of Pretoria, Department of Economics)

  • Cobus Vermeulen

    (University of Pretoria, Department of Economics)

This paper develops a monetary endogenous growth overlapping generations model characterized by endogenous longevity and an inflation targeting monetary authority, and analyzes the growth dynamics that emerges from this framework. Besides the endogenous longevity which depends on the complimentarity of private and public health expenditures, the growth process is endogenized by allowing for a productive role of government expenditure on infrastructure. Following the huge existing literature, money is introduced by assuming that banks are obligated to hold a fraction of the deposits as cash reserve requirements. Given this framework, we show that multiple equilibria emerges, with the low-growth (high-growth) equilibrium being unstable (stable) and locally determinate (locally indeterminate). In addition, we show that, under certain conditions, endogenous fluctuations and even chaos could emerge around the high-growth equilibrium.

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Article provided by Society for AEF in its journal Annals of Economics and Finance.

Volume (Year): 11 (2010)
Issue (Month): 1 (May)
Pages: 139-153

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Handle: RePEc:cuf:journl:y:2010:v:11:i:1:p:139-153
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  1. Hazan, Moshe & Zoabi, Hosny, 2005. "Does Longevity Cause Growth?," CEPR Discussion Papers 4931, C.E.P.R. Discussion Papers.
  2. Pierre-Richard Agénor, 2015. "Public capital, health persistence and poverty traps," Journal of Economics, Springer, vol. 115(2), pages 103-131, June.
  3. Noritaka Kudoh, 2004. "Debt, Deficits, and Deflation in an Economy with Central Bank Independence," Econometric Society 2004 Far Eastern Meetings 486, Econometric Society.
  4. Kalemli-Ozcan, Sebnem, 2003. "A stochastic model of mortality, fertility, and human capital investment," Journal of Development Economics, Elsevier, vol. 70(1), pages 103-118, February.
  5. Chakraborty, Shankha, 2004. "Endogenous lifetime and economic growth," Journal of Economic Theory, Elsevier, vol. 116(1), pages 119-137, May.
  6. Aisa, Rosa & Pueyo, Fernando, 2006. "Government health spending and growth in a model of endogenous longevity," Economics Letters, Elsevier, vol. 90(2), pages 249-253, February.
  7. Rangan Gupta & Emmanuel Ziramba, 2008. "Tax evasion and financial repression: A reconsideration using endogenous growth models," Working Papers 81, Economic Research Southern Africa.
  8. Kam Ki Tang & Jie Zhang, 2007. "Health, Education, And Life Cycle Savings In The Development Process," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 615-630, 07.
  9. Robert J. Barro, 1988. "Government Spending in a Simple Model of Endogenous Growth," NBER Working Papers 2588, National Bureau of Economic Research, Inc.
  10. Cervellati, Matteo & Sunde, Uwe, 2005. "Human capital formation, life expectancy, and the process of development," Munich Reprints in Economics 20083, University of Munich, Department of Economics.
  11. Rangan Gupta, 2008. "Currency Substitution and Financial Repression," Working Papers 200806, University of Pretoria, Department of Economics.
  12. Sarkar, Jayanta, 2007. "Growth dynamics in a model of endogenous time preference," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 528-542.
  13. Blackburn, Keith & Cipriani, Giam Pietro, 2002. "A model of longevity, fertility and growth," Journal of Economic Dynamics and Control, Elsevier, vol. 26(2), pages 187-204, February.
  14. Been-Lon Chen & Yeong-Yuh Chiang & Ping Wang, 2008. "Credit Market Imperfections and Long-Run Macroeconomic Consequences," Annals of Economics and Finance, Society for AEF, vol. 9(1), pages 151-175, May.
  15. Bhattacharya, Joydeep & Qiao, Xue, 2005. "Public and Private Expenditures on Health in a Growth Model," Staff General Research Papers 12378, Iowa State University, Department of Economics.
  16. Rangan Gupta, 2004. "Costly State Monitoring and Reserve Requirements," Working papers 2004-33, University of Connecticut, Department of Economics, revised Jul 2005.
  17. Diamond, Peter & Yellin, Joel, 1990. "Inventories and Money Holdings in a Search Economy," Econometrica, Econometric Society, vol. 58(4), pages 929-50, July.
  18. Amparo Castello-Climent & Rafael Domenech, 2006. "Human Capital Inequality, Life Expectancy and Economic Growth," Working Papers 0604, International Economics Institute, University of Valencia.
  19. Ken-ichi Hashimoto & Ken Tabata, 2005. "Health Infrastructure, Demographic Transition and Growth," Review of Development Economics, Wiley Blackwell, vol. 9(4), pages 549-562, November.
  20. Helle Bunzel & Xue Qiao, 2005. "Endogenous lifetime and economic growth revisited," Economics Bulletin, AccessEcon, vol. 15(8), pages 1-8.
  21. Mitra, Tapan, 2001. "A Sufficient Condition for Topological Chaos with an Application to a Model of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 133-152, January.
  22. Pierre-Richard Agénor, 2006. "A Theory of Infrastructure-led Development," Centre for Growth and Business Cycle Research Discussion Paper Series 83, Economics, The Univeristy of Manchester.
  23. Rangan Gupta & Emmanuel Ziramba, 2008. "Costly Tax Enforcement and Financial Repression," Working Papers 200818, University of Pretoria, Department of Economics.
  24. Sebnem Kalemli-Ozcan, 2008. "The uncertain lifetime and the timing of human capital investment," Journal of Population Economics, Springer, vol. 21(3), pages 557-572, July.
  25. Jocelyn E. Finlay, 2006. "Endogenous Longevity and Economic Growth," PGDA Working Papers 0706, Program on the Global Demography of Aging.
  26. Rangan Gupta & Emmanuel Ziramba, 2008. "Openness, Bureaucratic Corruption and Public Policy in an Endogenous Growth Model," Working Papers 200817, University of Pretoria, Department of Economics.
  27. Osang, Thomas & Sarkar, Jayanta, 2005. "Endogenous Mortality, Human Capital and Endogenous Growth," Departmental Working Papers 0511, Southern Methodist University, Department of Economics.
  28. repec:ebl:ecbull:v:15:y:2005:i:8:p:1-8 is not listed on IDEAS
  29. Jayanta Sarkar, 2008. "Mortality, Fertility, and Persistent Income Inequality," Southern Economic Journal, Southern Economic Association, vol. 75(2), pages 332-350, October.
  30. Gupta, Rangan, 2008. "Tax evasion and financial repression," Journal of Economics and Business, Elsevier, vol. 60(6), pages 517-535.
  31. Pierre-Richard Agénor, 2006. "A Theory of Infrastructure-led Development," The School of Economics Discussion Paper Series 0640, Economics, The University of Manchester.
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