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Equilibrium Health Spending and Population Aging in a Model of Endogenous Growth - Will the GDP Share of Health Spending Keep Rising?

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  • Isaac Ehrlich
  • Yong Yin

Abstract

The apparently unrelenting growth in the GDP-share of health spending (SHS) has been a perennial issue of policy concern. Does an equilibrium limit exist? The issue has been left open in recent dynamic models which take income growth and population aging as given. We view these variables as endogenously determined within an overlapping-generations, human-capital-based endogenous-growth model, where a representative parent makes all life-cycle consumption and investment decisions and life and health protection are subject to diminishing returns. Our prototype model, allowing for both quantity and quality of life as desired goods, yields equilibrium upper bounds for SHS. Our calibrated simulations also account for observed trends in reproductive choices, population aging, life expectancy, and economic growth. The analysis offers new insights about factors that drive long-term trends in aging and health spending and establishes a direct relation between health investments at young age and the equilibrium, steady-state rate of economic growth.

Suggested Citation

  • Isaac Ehrlich & Yong Yin, 2014. "Equilibrium Health Spending and Population Aging in a Model of Endogenous Growth - Will the GDP Share of Health Spending Keep Rising?," NBER Working Papers 19856, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:19856
    Note: AG EFG HC HE PE
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    References listed on IDEAS

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    1. Casper Worm Hansen, 2013. "Health and Development: A Neoclassical Perspective," Journal of Human Capital, University of Chicago Press, vol. 7(3), pages 274-295.
    2. Isaac Ehrlich & Yong Yin, 2005. "Explaining Diversities in Age-Specific Life Expectancies and Values of Life Saving: A Numerical Analysis," Journal of Risk and Uncertainty, Springer, vol. 31(2), pages 129-162, September.
    3. Ehrlich, Isaac & Lui, Francis T, 1991. "Intergenerational Trade, Longevity, and Economic Growth," Journal of Political Economy, University of Chicago Press, vol. 99(5), pages 1029-1059, October.
    4. Robert E. Hall & Charles I. Jones, 2007. "The Value of Life and the Rise in Health Spending," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 39-72.
    5. Juster, F Thomas & Stafford, Frank P, 1991. "The Allocation of Time: Empirical Findings, Behavioral Models, and Problems of Measurement," Journal of Economic Literature, American Economic Association, vol. 29(2), pages 471-522, June.
    6. Ehrlich, Isaac & Kim, Jinyoung, 2005. "Endogenous fertility, mortality and economic growth: Can a Malthusian framework account for the conflicting historical trends in population?," Journal of Asian Economics, Elsevier, vol. 16(5), pages 789-806, October.
    7. Michael R. Haines, 1994. "Estimated Life Tables for the United States, 1850-1900," NBER Historical Working Papers 0059, National Bureau of Economic Research, Inc.
    8. Hoyt Bleakley, 2007. "Disease and Development: Evidence from Hookworm Eradication in the American South," The Quarterly Journal of Economics, Oxford University Press, vol. 122(1), pages 73-117.
    9. Adrienne M. Lucas, 2010. "Malaria Eradication and Educational Attainment: Evidence from Paraguay and Sri Lanka," American Economic Journal: Applied Economics, American Economic Association, vol. 2(2), pages 46-71, April.
    10. Ehrlich, Isaac, 2000. "Uncertain lifetime, life protection, and the value of life saving," Journal of Health Economics, Elsevier, vol. 19(3), pages 341-367, May.
    11. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Andreas Schick & Richard H. Steckel, 2015. "Height, Human Capital, and Earnings: The Contributions of Cognitive and Noncognitive Ability," Journal of Human Capital, University of Chicago Press, vol. 9(1), pages 94-115.
    2. Ehrlich, Isaac & Yin, Yong, 2018. "The problem of the uninsured," Research in Economics, Elsevier, vol. 72(1), pages 147-168.

    More about this item

    JEL classification:

    • I1 - Health, Education, and Welfare - - Health
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • J11 - Labor and Demographic Economics - - Demographic Economics - - - Demographic Trends, Macroeconomic Effects, and Forecasts
    • J17 - Labor and Demographic Economics - - Demographic Economics - - - Value of Life; Foregone Income
    • J24 - Labor and Demographic Economics - - Demand and Supply of Labor - - - Human Capital; Skills; Occupational Choice; Labor Productivity
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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