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Optimal savings and health spending over the life cycle

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  • Tamara Fioroni

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Abstract

This paper investigates the relationship between saving and health spending in a two-period overlapping generations economy. Individuals work in the first period of life and live in retirement in old age. Health spending is an activity that increases the quality of life and longevity. Empirical evidence shows that both health spending and saving behave as luxury goods but their behavior differs markedly according to the level of per capita GDP. The share of saving on GDP has a concave shape with respect to per capita GDP, whereas the share of health spending on GDP increases more than proportionally with respect to per capita GDP. Their ratio is nonlinear with respect to income, i.e. first increasing and then decreasing. This ratio, in the proposed model, is equal to the ratio between the elasticity of the utility function with respect to saving and the elasticity of the utility function with respect to health.
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Suggested Citation

  • Tamara Fioroni, 2010. "Optimal savings and health spending over the life cycle," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 11(4), pages 355-365, August.
  • Handle: RePEc:spr:eujhec:v:11:y:2010:i:4:p:355-365 DOI: 10.1007/s10198-009-0183-0
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    References listed on IDEAS

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    Cited by:

    1. Luciano Fanti & Luca Gori & Fabio Tramontana, 2014. "Endogenous lifetime, accidental bequests and economic growth," Decisions in Economics and Finance, Springer;Associazione per la Matematica, vol. 37(1), pages 81-98, April.
    2. 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.
    3. Fanti, Luciano & Gori, Luca, 2010. "Public expenditure on health and private old-age insurance in an OLG growth model with endogenous fertility: chaotic cycles under perfect foresight," MPRA Paper 23697, University Library of Munich, Germany.

    More about this item

    Keywords

    Intertemporal choice; Health spending; Adult mortality; Saving; D91; I12; E21;

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • I12 - Health, Education, and Welfare - - Health - - - Health Behavior
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth

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