Health subsidies, prevention and welfare

Luca Marchiori () and Olivier Pierrard

No 139, BCL working papers from Central Bank of Luxembourg

Abstract: Health subsidies involve public budgetary costs. However, they generate a positive externality by encouraging participation in health-improving initiatives, which help reduce future health care costs. We build an overlapping generations model with a government subsidizing investment in health by the young generation and paying the health care costs of the old generation. We find that the welfare-maximizing subsidy rate depends positively on health externality and the size of health care costs, and negatively on the discount factor. The subsidy rate should therefore be high when prevention more effective at cost saving and when the population is myopic about the future. Moreover, the welfare-maximizing subsidy rate is lower than the health-maximizing rate but higher than the capital-maximizing rate.

Keywords: Overlapping generations model; health subsidy; welfare (search for similar items in EconPapers)
JEL-codes: H23 I18 O41 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2020-01
New Economics Papers: this item is included in nep-dge and nep-hea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Journal Article: Health subsidies, prevention and welfare (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:bcl:bclwop:bclwp139

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