Government health spending and growth in a model of endogenous longevity

Growth and welfare effects of health care in knowledge-based economies

“…Miles (1999), Attanasio et al (2007) and Krueger and Ludwig (2007) predict a considerable reduction in the (world) interest rate due to aging in industrialized countries. As it turns out in our model the reduction in the interest rate due to the greater accumulation of wealth and capital by an aging population is indeed the crucial force behind the reallocation of labor from final goods production to the R&D sector; and, thus, a factor in the enhancement of growth that remains unaccounted for in Aísa and Pueyo (2004), Aísa and Pueyo (2006) and Schneider and Winkler (2010).…”

“…Aísa and Pueyo (2004), Aísa and Pueyo (2006) and Schneider and Winkler (2010) also develop a hump-shaped relationship between the provision of health care and endogenous growth within an OLG economy. 3 In their models, however, growth is driven by capital spillovers a la Romer (1986).…”

“…Kalemli-Ozcan et al (2000) and Cervellati and Sunde (2005), who show that increasing longevity leads to higher educational investments and in turn to faster economic growth. The third point has been most extensively analyzed (see for example Reinhart, 1999;Futagami and Nakajima, 2001; Aísa and Pueyo, 2006;Azomahou et al, 2009;Schneider and Winkler, 2010;Heijdra and Mierau, 2011), where the framework of perpetual growth due to learning-by-doing spillovers according to Romer (1986) is used to show that faster capital accumulation as caused by increases in longevity leads to faster economic growth. The fourth issue has been emphasized by Bloom et al (2003) who argue that a drop in the fertility rate of a country decreases the overall dependency ratio because it leads youth dependency ratios to decline instantaneously while old age dependency ratios remain unchanged for a substantial period of time.…”

“…Both of these aspects are included in our model as a basis for a deeper and more differentiated explanation of the mechanisms underlying the health-growth nexus. Aísa and Pueyo (2004) and Aísa and Pueyo (2006) assume that health care is produced from converted consumption/capital goods, while labor is only used in the production of consumption/capital goods. Thus, per se their model does not allow to trace the striking change in employment shares identified by Pauly and Saxena (2012).…”

“…4 For reasons of analytical tractability, Aísa and Pueyo (2004) and Aísa and Pueyo (2006) need to assume that the mortality rate decreases in the level of health care (or equivalently health expenditure) per unit of GDP. This has the awkward implication that for a given level of health care inputs, mortality increases in the level of GDP, a relationship that contradicts most empirical evidence (e.g.…”