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Population Aging and Economic Growth: the effect of health expenditure

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  • Atsue Mizushima

Abstract

Rising longevity has led to population aging in developed countries, causing increasing concerns about its economic impact. Specially, the trend of population aging increases health expenditure in developed countries, and 70% to 80% of health expenditure is funded by public sector. Therefore, this paper focuses on the health demand in an aging economy and examines how the aging of the population and public health funding (PHF) affects agents' behavior. For this purpose, we construct a simple growth model and examine the e®ect of aging and PHF on saving and the growth rate. We show that an increase in life expectancy increases the growth rate in the economy without PHF, but that it has an inverted U-shaped relation in the economy with PHF. From the welfare standpoint, we show that it increases the intergenerational conflict between current and future generation and that PHF has the result of alleviating the conflict.

Suggested Citation

  • Atsue Mizushima, 2008. "Population Aging and Economic Growth: the effect of health expenditure," Economics Working Papers ECO2008/35, European University Institute.
  • Handle: RePEc:eui:euiwps:eco2008/35
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    References listed on IDEAS

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    1. Romer, Paul M, 1986. "Increasing Returns and Long-run Growth," Journal of Political Economy, University of Chicago Press, vol. 94(5), pages 1002-1037, October.
    2. de la Croix, David & Licandro, Omar, 1999. "Life expectancy and endogenous growth," Economics Letters, Elsevier, vol. 65(2), pages 255-263, November.
    3. Jacobson, Lena, 2000. "The family as producer of health -- an extended grossman model," Journal of Health Economics, Elsevier, vol. 19(5), pages 611-637, September.
    4. Blanchard, Olivier J, 1985. "Debt, Deficits, and Finite Horizons," Journal of Political Economy, University of Chicago Press, vol. 93(2), pages 223-247, April.
    5. Michael G. Palumbo, 1999. "Uncertain Medical Expenses and Precautionary Saving Near the End of the Life Cycle," Review of Economic Studies, Oxford University Press, vol. 66(2), pages 395-421.
    6. Pecchenino, Rowena A & Pollard, Patricia S, 1997. "The Effects of Annuities, Bequests, and Aging in an Overlapping Generations Model of Endogenous Growth," Economic Journal, Royal Economic Society, vol. 107(440), pages 26-46, January.
    7. Boucekkine, Raouf & de la Croix, David & Licandro, Omar, 2002. "Vintage Human Capital, Demographic Trends, and Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 104(2), pages 340-375, June.
    8. Grossman, Michael, 1972. "On the Concept of Health Capital and the Demand for Health," Journal of Political Economy, University of Chicago Press, vol. 80(2), pages 223-255, March-Apr.
    9. Tabata, Ken, 2005. "Population aging, the costs of health care for the elderly and growth," Journal of Macroeconomics, Elsevier, vol. 27(3), pages 472-493, September.
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    More about this item

    Keywords

    life expectancy; household production; economic growth; social welfare;

    JEL classification:

    • I10 - Health, Education, and Welfare - - Health - - - General
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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