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Growth and welfare effects of health care in knowledge based economies

  • Kuhn, Michael
  • Prettner, Klaus

We study the effects of a labor-intensive health care sector within an R&D-driven growth model with overlapping generations. Health care increases longevity and labor participation/productivity. We examine under which conditions expanding health care enhances growth and welfare. Even if the provision of health care diverts labor from productive activities, it may still fuel R&D and economic growth if the additional wealth that comes with expanding longevity translates into a more capital/machine- intensive final goods production and, thereby, raises the return to developing new machines. We establish mild conditions under which an expansion of health care beyond the growth-maximizing level is Pareto-improving.

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Paper provided by Vienna University of Technology, Institute for Mathematical Methods in Economics, Research Group Economics (ECON) in its series ECON WPS - Vienna University of Technology Working Papers in Economic Theory and Policy with number 03/2012.

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Date of creation: 2012
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Handle: RePEc:zbw:tuweco:032012
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