HEALTH, EDUCATION, AND LIFE CYCLE SAVINGS IN THE DEVELOPMENT PROCESS

Kam Ki Tang and Jie Zhang

Economic Inquiry, 2007, vol. 45, issue 3, 615-630

Abstract: This paper studies investment in health and human capital in a life cycle model. Health investment enhances survival to old age by improving health from its endowed level. The model predicts two distinctive phases of development. When income is low enough, the economy has no health investment and little savings, leading to slow growth. When income grows, health investment will become positive and the saving rate will rise, leading to higher life expectancy and faster growth. A health subsidy can move the economy from the first phase to the next. Subsidies on health and human capital investments can improve welfare. (JEL I00, J10, H50, O10)

Date: 2007
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