On Optimal Subsidies for Prevention and Long-Term Care

Pablo Garcia Sanchez, Luca Marchiori () and Olivier Pierrard

No 2024008, LIDAM Discussion Papers IRES from Université catholique de Louvain, Institut de Recherches Economiques et Sociales (IRES)

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.

Keywords: Health; Prevention; Optimal Ramsey policy; Overlapping generations (search for similar items in EconPapers)
JEL-codes: H23 I18 O41 (search for similar items in EconPapers)
Pages: 32
Date: 2024-06-10
New Economics Papers: this item is included in nep-age, nep-dge, nep-hea and nep-pbe
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Working Paper: On optimal subsidies for prevention and long-term care (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:ctl:louvir:2024008

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