Optimal savings and health spending over the life cycle

Abstract

This paper investigates the relationship between saving and health spending in a two-period overlapping generations economy. Individuals work in the first period of life and live in retirement in old age. Health spending is an activity that increases quality of life and longevity. Empirical evidence shows that both health spending and saving behave as luxury goods but their behaviour differs markedly according to the level of per capita GDP. The share of saving on GDP has a concave shape with respect to per capita GDP, whereas the share of health spending on GDP increases more than proportionally with respect to per capita GDP. The ratio of saving to spending is nonlinear with respect to income, i.e. first increasing and then decreasing. This ratio, in the proposed model, is equal to the ratio between the elasticity of the utility function with respect to saving and the elasticity of the utility function with respect to health.

Endogenous Longevity and Optimal Tax Progressivity

“…The empirical evidence regarding whether to regard private and public health expenditures as substitutes ( 𝜌 > 0 ) or complements ( 𝜌 < 0 ) is mixed though. Fiorini (2010) uses World Bank data from 1997 to 2005 to estimate that public and private health expenditures are substitutes. Using US data from between 1987and 2002, Cutler and Gruber (1996a , Cutler and Gruber (1996b) , and Gruber and Simon (2008) report that public health expenditures crowd out private health expenditures.…”

“…Fiorini (2010) presents empirical evidence that private and public health expenditures are substitutes in the health production function. In our sensitivity analysis in Appendix A.4, we consider a more general form of the health production function (CES function) but find our results to be robust to the degree of substitution elasticity.4 Since we are interested in the mechanism of endogenous longevity, we refrain from modeling the health expenditures of the elderly, e.g., on chronic and nonfatal diseases.…”

National Saving and Analysis of Relatively Oversaving or Undersaving of Economies

“…Základní přístup pak může být různě obohacován. Fioroni (2009) vypracovala dvouperiodový OLG model, ve kterém kromě užitku ze spotřeby uvažuje i užitek ze zdravotního statusu. Zdravotní status je pak zvyšován zvlášť vyčleněnými výdaji -investicemi do zdraví, které mají charakter vzácného statku.…”

“…Na straně druhé stojí čistá spotřeba, jež užitek opravdu zvyšuje. Na rozdíl od Fioroni (2009) předpokládáme, že zdravotní stav má exogenní charakter a není kontrolován investicemi do zdraví. Dále zohledníme touhu zanechat po sobě potomkům či "světu" dědictví, tedy subjektivní uspokojení altruisticky uvažujícího spotřebitele (např.…”

Consumer Financial Behavior: An Interdisciplinary Review of Selected Theories and Research

“…Then empirical data are used for simulations to show optimal life‐cycle patterns. This approach is used in explaining the role of durables in consumption and saving (Fernández‐Villaverde & Krueger, 2010), health spending and optimal saving (Fioroni, 2010), optimal life‐cycle saving (Hanna, Fan, & Chang, 1995), optimal asset allocation (Gomes & Michaelides, 2005), housing tenure and wealth distribution (Silos, 2007), optimal asset allocation with housing as collateral (Yao & Zhang, 2005), housing and debt over the business cycle (Iacoviello & Pavan, 2009), endogenous debt constraints (Andolfatto & Gervais, 2008), debt default (Athreya, 2008; Lopes, 2008), and optimal tax and expenditure policies (Zee, 2009).…”