Life Expectancy, Health Spending and Saving
This paper investigates the relationship between saving and health spending in a two-period overlapping generations economy. Individuals work in the first period and live in retirement in the old age. Health investment is an activity that increases the quality of life and the probability of surviving from the first period to the next. Empirical evidence shows that both health spending and saving, i.e. the consumption when old, behave as luxury goods but their behavior is strongly different according to the level of per capita GDP. The share of saving on GDP is nearly concave with respect to per capita GDP whereas the share of health expenditure on GDP increases more than proportionally with respect to per capita GDP. The ratio of saving to health investment is nonlinear with respect to per capita GDP, i.e. first increasing and then decreasing. This ratio, in the proposed model, is equal to the ratio between the elasticity of the survival function and the elasticity of the utility function. The model can replicate empirical results if the utility function and the survival function presents a non-constant elasticity.
|Date of creation:||01 Jan 2006|
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