Healthy aging and capital accumulation

Pablo Garcia Sanchez, Luca Marchiori () and Olivier Pierrard

No 189, BCL working papers from Central Bank of Luxembourg

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.

Keywords: Overlapping generations; public health; health channels; capital accumulation. (search for similar items in EconPapers)
Pages: 36 pages
Date: 2024-09
New Economics Papers: this item is included in nep-age and nep-dge
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