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Optimal Social Insurance and Health Inequality

Listed author(s):
  • Volker Grossmann
  • Holger Strulik

This paper integrates into public economics a biologically founded, stochastic process of individual ageing. The novel approach enables us to investigate the interaction between health and retirement policy in order to quantitatively characterize the optimal joint design of the social insurance system today and in response to future medical progress, and its implications for health inequality. Calibrating our model to Germany, we find that currently the public health and pension system is approximately optimal. Future progress in medical technology calls for a potentially drastic increase in health spending that typically shall be accompanied with a lower pension savings rate and a higher retirement age. Medical progress and higher health spending is predicted to lead to more health inequality.

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File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp5604.pdf
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Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 5604.

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Date of creation: 2015
Handle: RePEc:ces:ceswps:_5604
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