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Longevity, health spending, and pay-as-you-go pensions

  • PESTIEAU, Pierre
  • PONTHIERE, Grégory
  • SATO, Motohiro

This paper aims at investigating whether or not a utilitarian social planner should subsidize longevity-enhancing expenditures in an economy with a pay-as-you-go pension system. For that purpose, a two-period overlapping-generations model is developed, in which the probability of survival to the second period can be raised by private health spending. Focusing on the steady state, it is shown that the sign of the optimal subsidy on health expenditures tends to be negative when the replacement ratio is sufficiently large. Moreover, the optimal health subsidy is also shown to depend significantly on individual preferences and on the longevity production process.

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Paper provided by Université catholique de Louvain, Center for Operations Research and Econometrics (CORE) in its series CORE Discussion Papers RP with number 2029.

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Handle: RePEc:cor:louvrp:2029
Note: In : FinanzArchiv/Public Finance Analysis, 64(1), 1-18, 2008
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  1. EECKHOUDT, Louis & PESTIEAU, Pierre, 2007. "Fear of ruin and longevity enhancing investment," CORE Discussion Papers 2007032, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Volker Meier & Robert Fenge, 2004. "Are Family Allowances And Fertility-Related Pensions Siamese Twins?," Royal Economic Society Annual Conference 2004 125, Royal Economic Society.
  3. Sinn, Hans-Werner, 2004. "The pay-as-you-go pension system as fertility insurance and an enforcement device," Munich Reprints in Economics 19606, University of Munich, Department of Economics.
  4. de la Croix,David & Michel,Philippe, 2002. "A Theory of Economic Growth," Cambridge Books, Cambridge University Press, number 9780521001151.
  5. Steve Ambler, 2000. "Optimal Time Consistent Fiscal Policy with Overlapping Generations," Cahiers de recherche CREFE / CREFE Working Papers 111, CREFE, Université du Québec à Montréal.
  6. Gregory Ponthiere, 2006. "Growth, Longevity and Public Policy," CESifo Working Paper Series 1780, CESifo Group Munich.
  7. Cremer, Helmuth & Gahvari, Firouz & Pestieau, Pierre, 2006. "Pensions with Heterogenous Individuals and Endogenous Fertility," CEPR Discussion Papers 5553, C.E.P.R. Discussion Papers.
  8. Rosa Aísa & Fernando Pueyo, 2004. "Endogenous longevity, health and economic growth: a slow growth for a longer life?," Economics Bulletin, AccessEcon, vol. 9(3), pages 1-10.
  9. Bhattacharya, Joydeep & Qiao, Xue, 2005. "Public and Private Expenditures on Health in a Growth Model," Staff General Research Papers 12378, Iowa State University, Department of Economics.
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