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Invest as You Go: How Public Health Investment Keeps Pension Systems Healthy

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Abstract

Better health not only boosts longevity in itself, it also postpones the initial onset of disability and chronic infirmity to a later age. In this paper we examine the potential effects of such 'compression of morbidity' on pensions, and introduce a health-dependent dimension to the standard pay-as-you-go (PAYG) pension scheme. Studying the long-term implications of such a system in a simple overlapping generations framework, we find that an increase in public health investment can augment capital accumulation in the long run. Because of this, the combination of health investment with a partially health-dependent PAYG scheme may in fact outperform a purely PAYG system in terms of lifetime welfare.

Suggested Citation

  • Paolo Melindi-Ghidi & Willem Sas, 2015. "Invest as You Go: How Public Health Investment Keeps Pension Systems Healthy," AMSE Working Papers 1525, Aix-Marseille School of Economics, Marseille, France.
  • Handle: RePEc:aim:wpaimx:1525
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    More about this item

    Keywords

    health investment; disability pension; long-term care; PAYG pension system; OLG model;

    JEL classification:

    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • J26 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Retirement; Retirement Policies
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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