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Long-Run Growth and Welfare Effects of Rising US Public Health Expenditure

  • Elwin Tobing

    ()

    (Azusa Pacific University, Azusa, CA, USA)

  • Jau-Lian Jeng

    (Azusa Pacific University, Azusa, CA, USA)

The continuing increase of the US public health spending would inevitably lead to a reduction in productive government spending, higher taxes, or both. If the government enacts any of the policies, to what extent would the rising health care spending affect the long-run economic growth and welfare? Using an endogenous growth model where investment in education is the driving force of growth, our quantitative analysis shows that if health is a consumption good, such policies will reduce long-run growth and welfare. To finance public health spending at 20 percent of gross domestic product (GDP), a policy that simultaneously reduces productive government spending and raises tax rates could decrease the long-run growth by 0.7 percentage points and welfare by 14 percent. When health is both consumption and productive good, this policy reduces long-run growth and welfare modestly.

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File URL: http://pfr.sagepub.com/content/40/4/470.abstract
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Article provided by in its journal Public Finance Review.

Volume (Year): 40 (2012)
Issue (Month): 4 (July)
Pages: 470-496

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Handle: RePEc:sae:pubfin:v:40:y:2012:i:4:p:470-496
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