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Public Expenditure on Health and Private Old-Age Insurance in an OLG Growth Model with Endogenous Fertility: Chaotic Dynamics Under Perfect Foresight

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  • Luciano Fanti
  • Luca Gori

Abstract

This study analyses the dynamics of an economy with overlapping generations, endogenous population (fertility and adult mortality), logarithmic preferences and Cobb–Douglas technology. We show that the public provision of health investments and the existence of a private system of old-age insurance (i.e., transfers from children to parents) may cause the birth and death of multiple (three) steady states, deterministic chaos and bubbling phenomena when individuals have perfect foresight. Interestingly, however, we show that periodic dynamics (cycles) or complex dynamics (chaos) and global stability of the economy can endogenously be reconciled in the model, because the rise either in public health investments or transfers from young to old people can have the potential to smooth and ultimately suppress endogenous fluctuations in the cases of existence of both a single steady state or multiple steady states. Copyright Springer Science+Business Media New York 2012

Suggested Citation

  • Luciano Fanti & Luca Gori, 2012. "Public Expenditure on Health and Private Old-Age Insurance in an OLG Growth Model with Endogenous Fertility: Chaotic Dynamics Under Perfect Foresight," Computational Economics, Springer;Society for Computational Economics, vol. 40(4), pages 333-353, December.
  • Handle: RePEc:kap:compec:v:40:y:2012:i:4:p:333-353
    DOI: 10.1007/s10614-012-9326-y
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    More about this item

    Keywords

    Chaos; Endogenous fertility and longevity; OLG model; Perfect foresight; Private old-age support; Public expenditure on health; C62; H55; I18; J14; J18;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • H55 - Public Economics - - National Government Expenditures and Related Policies - - - Social Security and Public Pensions
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • J18 - Labor and Demographic Economics - - Demographic Economics - - - Public Policy

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