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Health, Taxes, and Growth

  • Liutang Gong

    (Guanghua School of Management, Peking University)

  • Hongyi Li

    (BA Faculty, Chinese University of Hong Kong)

  • Dihai Wang

    (School of Economics, Fudan University)

  • Heng-fu Zou

    (CEMA, Central University, China
    School of Advanced Study (SAS), Shenzhen University, China
    IAS, Wuhan University, China
    Guanghua School of Management, Peking University, China)

This paper studies capital accumulation and consumption in the traditional Ramsey model under an exogenous growth framework. The model has three important features: (1) treating health as a simple function of consumption, which enable the study of health and growth in an aggregate macroeconomic model; (2) the existence of multiple equilibria of capital stock, health, and consumption, which is more consistent with the real world situation-rich countries may end up with high capital, better health, and higher consumption than poor countries; (3) the fundamental proposition of a consumption tax instead of capital taxation from the traditional growth model does not hold anymore in our model. As long as consumption goods contribute to health formation, the issue of a consumption tax versus an income (or capital) tax should be re-examined.

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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: 73-94

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Handle: RePEc:cuf:journl:y:2010:v:11:i:1:p:73-94
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