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The Golden Rule of Longevity

Author

Listed:
  • Gylfi Zoega

    (Aarhus Universitet
    University of Iceland)

  • Gylfi Zoega

    (University of Iceland
    Birkbeck, University of London)

Abstract

How much should society invest in medical care that extends the lives of the older generations? We derive a golden rule for the level of health care expenditures and find that the optimal level of life-extending health care expenditures should increase with rising productivity, increase with the retirement age, and also increase with the population growth rate if a higher growth rate lowers the ratio of retirees to working-age people sufficiently, while the effects of an improvement in medical technology are ambiguous. Moreover, we find that a market economy may be inefficient in terms of the provision of life-extending health care because an individual ignores the effect of his own longevity on the income of others.

Suggested Citation

  • Gylfi Zoega & Gylfi Zoega, 2017. "The Golden Rule of Longevity," Birkbeck Working Papers in Economics and Finance 1705, Birkbeck, Department of Economics, Mathematics & Statistics.
    • Handle: RePEc:bbk:bbkefp:1705
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    File URL: https://eprints.bbk.ac.uk/id/eprint/26862
    File Function: First version, 2017
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    Keywords

    Health care expenditures; golden rule; productivity.;
    All these keywords.

    JEL classification:

    • E6 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • I1 - Health, Education, and Welfare - - Health

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