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Healthy aging and capital accumulation

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  • Pablo Garcia Sanchez
  • Luca Marchiori
  • Olivier Pierrard

Abstract

We study the effects on capital accumulation from public health in an overlapping generations model. Investing in the health of young individuals raises longevity and lowers frailty, influencing capital accumulation through three main channels. First, since it is tax-financed, public health investment reduces disposable income and the capacity to save (cost channel). Second, it prolongs life expectancy, encouraging individuals to save for old age (longevity channel). Third, it reduces frailty and the need to save to finance long-term care (frailty channel). Longevity and frailty have ambiguous effects on taxation when the government subsidizes long-term care. We analytically derive the economic implications of these health channels and numerically illustrate our findings. Our main result is that although public investment in healthy aging is costly, it can stimulate capital accumulation even without directly affecting productivity. Classification-JEL: H51, I15, O41.

Suggested Citation

  • Pablo Garcia Sanchez & Luca Marchiori & Olivier Pierrard, 2024. "Healthy aging and capital accumulation," BCL working papers 189, Central Bank of Luxembourg.
    • Handle: RePEc:bcl:bclwop:bclwp189
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    More about this item

    Keywords

    Overlapping generations; public health; health channels; capital accumulation.;
    All these keywords.

    JEL classification:

    • H51 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Health
    • I15 - Health, Education, and Welfare - - Health - - - Health and Economic Development
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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