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Private and Public Health Expenditures in an Endogenous Growth Model with Inflation Targeting

  • Rangan Gupta

    ()

    (Department of Economics, University of Pretoria)

  • Cobus Vermeulen

    ()

    (Department of Economics, University of Pretoria and Department of Economics, University of South Africa (UNISA))

This paper develops a monetary endogenous growth overlapping generations model characterized by endogenous longevity and an inflation targeting monetary authority, and analyzes the growth dynamics that emerges from this framework. Besides the endogenous longevity which depends on the complimentarity of private and public health expenditures, the growth process is endogenized by allowing for a productive role of government expenditure on infrastructure. Following the huge existing literature, money is introduced by assuming that banks are obligated to hold a fraction of the deposits as cash reserve requirements. Given this framework, we show that multiple equilibria emerges, with the low-growth (high-growth) equilibrium being unstable (stable) and locally determinate (locally indeterminate). In addition, we show that, under certain conditions, endogenous fluctuations and even chaos could emerge around the high-growth equilibrium.

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Paper provided by University of Pretoria, Department of Economics in its series Working Papers with number 201001.

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Length: 22 pages
Date of creation: Feb 2010
Date of revision:
Handle: RePEc:pre:wpaper:201001
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Web page: http://www.up.ac.za/economics

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  1. Rangan Gupta & Emmanuel Ziramba, 2009. "Tax evasion and financial repression: a reconsideration using endogenous growth models," Journal of Economic Studies, Emerald Group Publishing, vol. 36(6), pages 660-674, November.
  2. repec:ebl:ecbull:v:15:y:2005:i:8:p:1-8 is not listed on IDEAS
  3. Rangan Gupta, 2005. "Costly State Monitoring and Reserve Requirements," Annals of Economics and Finance, Society for AEF, vol. 6(2), pages 263-288, November.
  4. Cervellati, Matteo & Sunde, Uwe, 2005. "Human capital formation, life expectancy, and the process of development," Munich Reprints in Economics 20083, University of Munich, Department of Economics.
  5. Rangan Gupta, 2005. "Tax Evasion and Financial Repression," Working papers 2005-34, University of Connecticut, Department of Economics, revised Jun 2007.
  6. Ken-ichi Hashimoto & Ken Tabata, 2005. "Health Infrastructure, Demographic Transition and Growth," Review of Development Economics, Wiley Blackwell, vol. 9(4), pages 549-562, November.
  7. Rangan Gupta & Emmanuel Ziramba, 2008. "Openness, Bureaucratic Corruption and Public Policy in an Endogenous Growth Model," Working Papers 200817, University of Pretoria, Department of Economics.
  8. Been-Lon Chen & Yeong-Yuh Chiang & Ping Wang, 2008. "Credit Market Imperfections and Long-Run Macroeconomic Consequences," Annals of Economics and Finance, Society for AEF, vol. 9(1), pages 151-175, May.
  9. Mitra, Tapan, 2001. "A Sufficient Condition for Topological Chaos with an Application to a Model of Endogenous Growth," Journal of Economic Theory, Elsevier, vol. 96(1-2), pages 133-152, January.
  10. Jayanta Sarkar, 2008. "Mortality, Fertility, and Persistent Income Inequality," Southern Economic Journal, Southern Economic Association, vol. 75(2), pages 332-350, October.
  11. Kalemli-Ozcan, Sebnem, 2003. "A stochastic model of mortality, fertility, and human capital investment," Journal of Development Economics, Elsevier, vol. 70(1), pages 103-118, February.
  12. Chakraborty, Shankha, 2004. "Endogenous lifetime and economic growth," Journal of Economic Theory, Elsevier, vol. 116(1), pages 119-137, May.
  13. Barro, Robert J., 1990. "Government Spending in a Simple Model of Endogeneous Growth," Scholarly Articles 3451296, Harvard University Department of Economics.
  14. Rangan Gupta, 2008. "Currency Substitution and Financial Repression," Working Papers 200806, University of Pretoria, Department of Economics.
  15. Moshe Hazan & Hosny Zoabi, 2005. "Does Longevity Cause Growth," GE, Growth, Math methods 0507001, EconWPA.
  16. Climent, Amparo Castello & Rafael Domenech, 2003. "Human Capital Inequality, Life Expectancy and Economic Growth," Royal Economic Society Annual Conference 2003 46, Royal Economic Society.
  17. P R Agénor, 2009. "Public Capital, Health Persistence and Poverty Traps," Centre for Growth and Business Cycle Research Discussion Paper Series 115, Economics, The Univeristy of Manchester.
  18. Helle Bunzel & Xue Qiao, 2005. "Endogenous lifetime and economic growth revisited," Economics Bulletin, AccessEcon, vol. 15(8), pages 1-8.
  19. Osang, Thomas & Sarkar, Jayanta, 2005. "Endogenous Mortality, Human Capital and Endogenous Growth," Departmental Working Papers 0511, Southern Methodist University, Department of Economics.
  20. Kam Ki Tang & Jie Zhang, 2007. "Health, Education, And Life Cycle Savings In The Development Process," Economic Inquiry, Western Economic Association International, vol. 45(3), pages 615-630, 07.
  21. Pierre-Richard Agénor, 2006. "A Theory of Infrastructure-led Development," The School of Economics Discussion Paper Series 0640, Economics, The University of Manchester.
  22. Rangan Gupta & Emmanuel Ziramba, 2008. "Costly Tax Enforcement and Financial Repression," Working Papers 99, Economic Research Southern Africa.
  23. Sarkar, Jayanta, 2007. "Growth dynamics in a model of endogenous time preference," International Review of Economics & Finance, Elsevier, vol. 16(4), pages 528-542.
  24. Pierre-Richard Agénor, 2006. "A Theory of Infrastructure-led Development," Centre for Growth and Business Cycle Research Discussion Paper Series 83, Economics, The Univeristy of Manchester.
  25. Bhattacharya, Joydeep & Qiao, Xue, 2005. "Public and Private Expenditures on Health in a Growth Model," Staff General Research Papers 12378, Iowa State University, Department of Economics.
  26. Diamond, Peter & Yellin, Joel, 1990. "Inventories and Money Holdings in a Search Economy," Econometrica, Econometric Society, vol. 58(4), pages 929-50, July.
  27. Jocelyn E. Finlay, 2006. "Endogenous Longevity and Economic Growth," PGDA Working Papers 0706, Program on the Global Demography of Aging.
  28. Noritaka Kudoh, 2004. "Debt, Deficits, and Deflation in an Economy with Central Bank Independence," Econometric Society 2004 Far Eastern Meetings 486, Econometric Society.
  29. Aisa, Rosa & Pueyo, Fernando, 2006. "Government health spending and growth in a model of endogenous longevity," Economics Letters, Elsevier, vol. 90(2), pages 249-253, February.
  30. Blackburn, Keith & Cipriani, Giam Pietro, 2002. "A model of longevity, fertility and growth," Journal of Economic Dynamics and Control, Elsevier, vol. 26(2), pages 187-204, February.
  31. Sebnem Kalemli-Ozcan, 2008. "The uncertain lifetime and the timing of human capital investment," Journal of Population Economics, Springer, vol. 21(3), pages 557-572, July.
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