IDEAS home Printed from https://ideas.repec.org/p/ctl/louvir/2024008.html
   My bibliography  Save this paper

On Optimal Subsidies for Prevention and Long-Term Care

Author

Listed:
  • Pablo GARCIA SANCHEZ

    (Banque Centrale du Luxembourg)

  • Luca MARCHIORI

    (Banque Centrale du Luxembourg)

  • Olivier PIERRARD

    (Banque Centrale du Luxembourg)

Abstract

We propose a two-period overlapping generation economy that incorporates health investment in preventive measures during youth. These preventive measures contribute to increased longevity and reduced frailty, which influence old-age dependency and pension costs. As these costs are partly funded through pay-as-you-go social security contributions, investment in prevention creates externalities for the next generation. We analytically determine the optimal level of prevention and characterize the optimal health policy that a government should implement to achieve it. Our findings reveal that the optimal subsidy to long-term care exceeds the optimal subsidy to preventive measures. Furthermore, both subsidies are inversely related to the generosity of the public pension scheme. We explore the robustness of our results through various extensions and demonstrate their consistency with several patterns observed in cross-country OECD data.

Suggested Citation

  • Pablo GARCIA SANCHEZ & Luca MARCHIORI & Olivier PIERRARD, 2024. "On Optimal Subsidies for Prevention and Long-Term Care," LIDAM Discussion Papers IRES 2024008, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    • Handle: RePEc:ctl:louvir:2024008
    as

    Download full text from publisher

    File URL: https://sites.uclouvain.be/econ/DP/IRES/2024008.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Howdon, Daniel & Rice, Nigel, 2018. "Health care expenditures, age, proximity to death and morbidity: Implications for an ageing population," Journal of Health Economics, Elsevier, vol. 57(C), pages 60-74.
    2. Schünemann, Johannes & Strulik, Holger & Trimborn, Timo, 2022. "Optimal demand for medical and long-term care," The Journal of the Economics of Ageing, Elsevier, vol. 23(C).
    3. YiLi Chien & Yi Wen, 2022. "Optimal Ramsey Taxation in Heterogeneous Agent Economies with Quasi-Linear Preferences," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 46, pages 124-160, October.
    4. Dragone, Davide & Strulik, Holger, 2020. "Negligible senescence: An economic life cycle model for the future," Journal of Economic Behavior & Organization, Elsevier, vol. 171(C), pages 264-285.
    5. Friedrich Breyer & Normann Lorenz, 2021. "The “red herring” after 20 years: ageing and health care expenditures," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 22(5), pages 661-667, July.
    6. Krueger, Dirk & Ludwig, Alexander & Villalvazo, Sergio, 2021. "Optimal taxes on capital in the OLG model with uninsurable idiosyncratic income risk," Journal of Public Economics, Elsevier, vol. 201(C).
    7. Nicolas Sirven & Thomas Rapp, 2017. "The cost of frailty in France," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 18(2), pages 243-253, March.
    8. Mario Menegatti, 2014. "Optimal choice on prevention and cure: a new economic analysis," The European Journal of Health Economics, Springer;Deutsche Gesellschaft für Gesundheitsökonomie (DGGÖ), vol. 15(4), pages 363-372, May.
    9. Brianti, Marco & Magnani, Marco & Menegatti, Mario, 2018. "Optimal choice of prevention and cure under uncertainty on disease effect and cure effectiveness," Research in Economics, Elsevier, vol. 72(2), pages 327-342.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mauro Laudicella & Paolo Li Donni & Kim Rose Olsen & Dorte Gyrd‐Hansen, 2022. "Age, morbidity, or something else? A residual approach using microdata to measure the impact of technological progress on health care expenditure," Health Economics, John Wiley & Sons, Ltd., vol. 31(6), pages 1184-1201, June.
    2. David Crainich & Louis Eeckhoudt & Mario Menegatti, 2019. "Vaccination as a trade-off between risks," Italian Economic Journal: A Continuation of Rivista Italiana degli Economisti and Giornale degli Economisti, Springer;Società Italiana degli Economisti (Italian Economic Association), vol. 5(3), pages 455-472, October.
    3. Pablo Garcia-Sanchez & Olivier Pierrard, 2023. "Uncertain Lifetime, Health Investment And Welfare," LIDAM Discussion Papers IRES 2023020, Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES).
    4. Calciolari, Stefano & Luini, Cecilia, 2023. "Effects of the bio-psycho-social frailty dimensions on healthcare utilisation among elderly in Europe: A cross-country longitudinal analysis," Social Science & Medicine, Elsevier, vol. 339(C).
    5. Giuseppe Liotta & Francesco Gilardi & Stefano Orlando & Gennaro Rocco & Maria Grazia Proietti & Federica Asta & Manuela De Sario & Paola Michelozzi & Sandro Mancinelli & Leonardo Palombi & Maria Crist, 2019. "Cost of hospital care for the older adults according to their level of frailty. A cohort study in the Lazio region, Italy," PLOS ONE, Public Library of Science, vol. 14(6), pages 1-13, June.
    6. Andrea Riganti, 2021. "Containing costs in the Italian local healthcare market," Health Economics, John Wiley & Sons, Ltd., vol. 30(5), pages 1001-1014, May.
    7. Strulik, Holger, 2022. "Medical progress and life cycle choices," The Journal of the Economics of Ageing, Elsevier, vol. 23(C).
    8. Desu Liu & Mario Menegatti, 2019. "Optimal saving and health prevention," Journal of Economics, Springer, vol. 128(2), pages 177-191, October.
    9. Chen, Yunmin & Chien, YiLi & Wen, Yi & Yang, C.C., 2021. "Are unconditional lump-sum transfers a good idea?," Economics Letters, Elsevier, vol. 209(C).
    10. María Jose Aragon Aragon & Adriana Castelli & James Gaughan, 2017. "Hospital Trusts productivity in the English NHS: Uncovering possible drivers of productivity variations," PLOS ONE, Public Library of Science, vol. 12(8), pages 1-14, August.
    11. Schünemann, Johannes & Trimborn, Timo, 2023. "Boosting taxes for boasting about houses? Status concerns in the housing market," Journal of Economic Behavior & Organization, Elsevier, vol. 205(C), pages 120-143.
    12. Wee Shiong Lim & Sweet Fun Wong & Ian Leong & Philip Choo & Weng Sun Pang, 2017. "Forging a Frailty-Ready Healthcare System to Meet Population Ageing," IJERPH, MDPI, vol. 14(12), pages 1-16, November.
    13. repec:spo:wpmain:info:hdl:2441/56k383m9o9kpb1g6f8rvv74ok is not listed on IDEAS
    14. Laudicella, Mauro & Li Donni, Paolo, 2021. "The impact of supply-driven variation in time to death on the demand for health care," DaCHE discussion papers 2021:3, University of Southern Denmark, Dache - Danish Centre for Health Economics.
    15. Krueger, Dirk & Ludwig, Alexander & Villalvazo, Sergio, 2021. "Optimal taxes on capital in the OLG model with uninsurable idiosyncratic income risk," Journal of Public Economics, Elsevier, vol. 201(C).
    16. Emmanuelle Augeraud‐Véron & Marc Leandri, 2024. "Optimal self‐protection and health risk perceptions: Exploring connections between risk theory and the Health Belief Model," Health Economics, John Wiley & Sons, Ltd., vol. 33(7), pages 1565-1583, July.
    17. Richard Peter, 2021. "A fresh look at primary prevention for health risks," Health Economics, John Wiley & Sons, Ltd., vol. 30(5), pages 1247-1254, May.
    18. Mark Aguiar & Manuel Amador & Cristina Arellano, 2021. "Micro Risks and Pareto Improving Policies," Working Papers 2021-15, Princeton University. Economics Department..
    19. Boháček, Radim & Kejak, Michal, 2018. "Optimal government policies in models with heterogeneous agents," Journal of Economic Theory, Elsevier, vol. 176(C), pages 834-858.
    20. Chien, YiLi & Wen, Yi, 2022. "The determination of public debt under both aggregate and idiosyncratic uncertainty," Journal of Economic Theory, Elsevier, vol. 203(C).
    21. Xueyuan Wu & Chi-kin Law & Paul Siu Fai Yip, 2019. "A Projection of Future Hospitalisation Needs in a Rapidly Ageing Society: A Hong Kong Experience," IJERPH, MDPI, vol. 16(3), pages 1-11, February.

    More about this item

    Keywords

    Health; Prevention; Optimal Ramsey policy; Overlapping generations;
    All these keywords.

    JEL classification:

    • H23 - Public Economics - - Taxation, Subsidies, and Revenue - - - Externalities; Redistributive Effects; Environmental Taxes and Subsidies
    • I18 - Health, Education, and Welfare - - Health - - - Government Policy; Regulation; Public Health
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ctl:louvir:2024008. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Virginie LEBLANC (email available below). General contact details of provider: https://edirc.repec.org/data/iruclbe.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.