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Growth and welfare e ffects of health care in knowledge based economies

  • Michael Kuhn

    (Vienna Institute of Demography)

  • Klaus Prettner

    (Georg-August-University Göttingen)

We study the e ffects of a labor-intensive health care sector within an R&D-driven growth model with overlapping generations. Health care increases longevity and labor participation/productivity. We examine under which conditions expanding health care enhances growth and welfare. Even if the provision of health care diverts labor from productive activities, it may still fuel R&D and economic growth if the additional wealth that comes with expanding longevity translates into a more capital/machine- intensive fi nal goods production and, thereby, raises the return to developing new machines. We establish mild conditions under which an expansion of health care beyond the growth-maximizing level is Pareto-improving.

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Paper provided by Courant Research Centre PEG in its series Courant Research Centre: Poverty, Equity and Growth - Discussion Papers with number 120.

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Date of creation: 08 Aug 2012
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Handle: RePEc:got:gotcrc:120
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