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Health subsidies, prevention and welfare

Author

Listed:
  • Luca Marchiori

  • Olivier Pierrard

Abstract

Health subsidies involve public budgetary costs. However, they generate a positive externality by encouraging participation in health-improving initiatives, which help reduce future health care costs. We build an overlapping generations model with a government subsidizing investment in health by the young generation and paying the health care costs of the old generation. We find that the welfare-maximizing subsidy rate depends positively on health externality and the size of health care costs, and negatively on the discount factor. The subsidy rate should therefore be high when prevention more effective at cost saving and when the population is myopic about the future. Moreover, the welfare-maximizing subsidy rate is lower than the health-maximizing rate but higher than the capital-maximizing rate.

Suggested Citation

  • Luca Marchiori & Olivier Pierrard, 2020. "Health subsidies, prevention and welfare," BCL working papers 139, Central Bank of Luxembourg.
    • Handle: RePEc:bcl:bclwop:bclwp139
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    References listed on IDEAS

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    Cited by:

    1. Pablo Garcia Sanchez & Luca Marchiori & Olivier Pierrard, 2025. "Long-term care expenditures and investment decisions under uncertainty," Journal of Population Economics, Springer;European Society for Population Economics, vol. 38(1), pages 1-23, March.
    2. Chang, Tsung-Sheng, 2021. "Social distancing in retail: Influence of perceived retail crowding and self-efficacy on employees’ perceived risks," Journal of Retailing and Consumer Services, Elsevier, vol. 62(C).
    3. Rabah Amir & Raouf Boucekkine, 2023. "Epidemics, vaccines, and health policy," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 25(6), pages 1143-1148, December.
    4. Pablo GARCIA SANCHEZ & Luca MARCHIORI & Olivier PIERRARD, 2024. "On Optimal Subsidies for Prevention and Long-Term Care," LIDAM Discussion Papers IRES 2024008, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    5. Pablo Garcia Sanchez & Luca Marchiori & Olivier Pierrard, 2024. "Healthy aging and capital accumulation," BCL working papers 189, Central Bank of Luxembourg.

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    Keywords

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    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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