Should I Wait or Should I Pay? The Dynamics of Private and Public Healthcare

In many countries, a private health system coexists with the public one. Recently, however, it seems that the latter is subjected to budgetary cuts and no longer able to meet the needs of citizens. Within an OLG model with production and in which young agents invest in preventive medicine and consume private healthcare beside public one, we prove that access to public health system is rationed by increasing waiting times, entailing costs in terms of treatment e!ectiveness and psychological order. Considering a fiscal policy aimed at providing health services, we prove that there emerge two dynamic regimes, the first prevailing for low GDP levels, the other for larger ones, where waiting times are countercyclical. We find two stationary capital levels, the lower one being globally unstable while the higher one globally stable. We also study the set of optimal allocations and prove that stationary GDP is increasing in the social discount factor. Finally, we show that it is possible to decentralize any optimal allocation by fixing opportunely the debt-to-GDP ratio and government spending in healthcare.