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Growth and Welfare Effects of Health Care in Knowledge Based Economies

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  • Michael Kuhn
  • Klaus Prettner

Abstract

We consider an endogenous growth model with Blanchard-Yaari-type overlapping generations that is built around four sectors: final and intermediate goods production, an R&D sector and a health care sector. Health care serves to lower mortality and morbidity, the latter being related to participation/productivity in the labor market. We show that, regardless of its finance, the impact of health care on economic growth crucially depends on whether or not it increases employment in the R&D sector. Even if an increasing health care sector reduces the (effective) labor available for production and R&D, it may still fuel R&D employment and economic growth if the increase in aggregate wealth that comes with expanding longevity raises the capital intensity in the final goods sector to an extent that labor shifts to alternative employment in R&D. While numerical assessment indicates that the health sectors of the Euro area economies are too large from a growth perspective, we can establish mild conditions under which an expansion of health care beyond the growth-maximizing level constitutes a Pareto-improvement.

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  • Michael Kuhn & Klaus Prettner, 2012. "Growth and Welfare Effects of Health Care in Knowledge Based Economies," VID Working Papers 1206, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
  • Handle: RePEc:vid:wpaper:1206
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    Cited by:

    1. Frankovic, Ivan & Kuhn, Michael, 2018. "Health insurance, endogenous medical progress, and health expenditure growth," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 01/2018, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
    2. Frankovic, Ivan & Kuhn, Michael & Wrzaczek, Stefan, 2017. "Medical progress, demand for health care, and economic performance," ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy 08/2017, Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON).
    3. Gehringer, Agnieszka & Prettner, Klaus, 2014. "Longevity and technological change," Center for European, Governance and Economic Development Research Discussion Papers 213, University of Goettingen, Department of Economics.
    4. Ivan Frankovic & Michael Kuhn & Stefan Wrzaczek, 2016. "Medical Care within an OLG Economy with Realistic Demography," VID Working Papers 1603, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
    5. Baldanzi, Annarita & Prettner, Klaus & Tscheuschner, Paul, 2017. "Longevity-induced vertical innovation and the tradeoff between life and growth," Hohenheim Discussion Papers in Business, Economics and Social Sciences 31-2017, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    6. Maik T. Schneider & Ralph Winkler, 2010. "Growth and Welfare under Endogenous Lifetime," CER-ETH Economics working paper series 10/137, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
    7. Michael Kuhn & Klaus Prettner, 2015. "Population Structure and Consumption Growth: Evidence from National Transfer Accounts," VID Working Papers 1503, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
    8. Maria Rita Testa & Stuart Basten, 2012. "Have Lifetime Fertility Intentions Declined During the “Great Recession”?," VID Working Papers 1209, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.
    9. Volker Grossmann & Holger Strulik, 2015. "Optimal Social Insurance and Health Inequality," CESifo Working Paper Series 5604, CESifo Group Munich.
    10. David E. Bloom & Simiao Chen & Michael Kuhn & Mark E. McGovern & Les Oxley & Klaus Prettner, 2017. "The Economic Burden of Chronic Diseases: Estimates and Projections for China, Japan, and South Korea," NBER Working Papers 23601, National Bureau of Economic Research, Inc.
    11. Baldanzi, Annarita & Bucci, Alberto & Prettner, Klaus, 2017. "Children's health, human capital accumulation, and R&D-based economic growth," Hohenheim Discussion Papers in Business, Economics and Social Sciences 01-2017, University of Hohenheim, Faculty of Business, Economics and Social Sciences.
    12. repec:bla:ausecp:v:56:y:2017:i:1:p:72-94 is not listed on IDEAS
    13. repec:spr:jopoec:v:31:y:2018:i:1:d:10.1007_s00148-017-0654-z is not listed on IDEAS
    14. Gustav Feichtinger & Alexia Prskawetz & Andrea Seidl & Christa Simon & Stefan Wrzaczek, 2013. "Do Egalitarian Societies Boost Fertility?," VID Working Papers 1302, Vienna Institute of Demography (VID) of the Austrian Academy of Sciences in Vienna.

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    Keywords

    Endogenous growth; mortality; (Blanchard) overlapping generations; health care; research and development; sectoral composition;

    JEL classification:

    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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