Optimal savings and health spending over the life cycle

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    Abstract

    This paper investigates the relationshipbetween saving and health spending in a two-periodoverlapping generations economy. Individuals work in thefirst period of life and live in retirement in old age. Healthspending is an activity that increases quality of life andlongevity. Empirical evidence shows that both healthspending and saving behave as luxury goods but theirbehaviour differs markedly according to the level of percapita GDP. The share of saving on GDP has a concaveshape with respect to per capita GDP, whereas the share ofhealth spending on GDP increases more than proportionallywith respect to per capita GDP. The ratio of saving tospending is nonlinear with respect to income, i.e. firstincreasing and then decreasing. This ratio, in the proposedmodel, is equal to the ratio between the elasticity of theutility function with respect to saving and the elasticity ofthe utility function with respect to health.
    Original languageEnglish
    Pages (from-to)355-365
    Number of pages11
    JournalTHE EUROPEAN JOURNAL OF HEALTH ECONOMICS
    Volume11
    Publication statusPublished - 2010

    All Science Journal Classification (ASJC) codes

    • Economics, Econometrics and Finance (miscellaneous)
    • Health Policy

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