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Public Health Spending and Unfunded Public Pensions in an OLG Model of Neoclassical Growth: Some New Results About the Poverty Trap Problem


  • Luciano Fanti
  • Luca Gori


This paper introduces unfunded pay-as-you-go public pensions in a two-period overlapping generations economy with endogenous lifetime à la Chakraborty (2004). We study the transitional dynamics and steady states outcomes of the economy, showing that the public provision of health services may have not only the well-known beneficial effect to help to escape from poverty, but it can also produce unexpected negative consequences for per capita GDP in both low-income-high-mortality and high-income-low-mortality societies. Moreover, under myopic expectations, the government health expenditure can generate non-monotonic fluctuations in low mortality societies.

Suggested Citation

  • Luciano Fanti & Luca Gori, 2011. "Public Health Spending and Unfunded Public Pensions in an OLG Model of Neoclassical Growth: Some New Results About the Poverty Trap Problem," Rivista italiana degli economisti, Società editrice il Mulino, issue 2, pages 319-338.
  • Handle: RePEc:mul:jqat1f:doi:10.1427/34975:y:2011:i:2:p:319-338

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    More about this item


    health; OLG model; public pensions; C62; I18; J1; O4.;

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • J1 - Labor and Demographic Economics - - Demographic Economics


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