Conditioning Public Pensions on Health: Effects on Capital Accumulation and Welfare

Giorgio Fabbri, Marie-Louise Leroux, Paolo Melindi-Ghidi and Willem Sas
Additional contact information
Willem Sas: University of Stirling; Hasselt University; CESifo, Munich; UCLouvain & KU Leuven

No 2407, AMSE Working Papers from Aix-Marseille School of Economics, France

Abstract: This paper develops an overlapping generations model that links a public health system to a pay-as-you-go (PAYG) pension system. It relies on two assumptions. First, the health system directly finances curative health spending on the elderly. Second, public pensions partially depend on health status by introducing a component indexed to society's average level of old-age disability. Reducing the average disability rate in the economy then lowers pension benefits as the need to finance long-term care services also drops. We study the effects of introducing such a 'comprehensive' Social Security system on individual decisions, capital accumulation, and welfare. We first show that health investments can boost savings and capital accumulation under certain conditions. Second, if individuals are sufficiently concerned with their health when old, it is optimal to introduce a health-dependent pension system, as this will raise social welfare compared to a system where pensions are not tied to the society's average level of old-age disability. Our analysis thus highlights an important policy recommendation: making PAYG pension schemes partially health-dependent can be beneficial to society.

Keywords: Curative Health Investments; PAYG Pension System; Disability; overlapping generations; long-term care (search for similar items in EconPapers)
JEL-codes: H55 I15 O41 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2024-03
New Economics Papers: this item is included in nep-age, nep-dem, nep-dge, nep-hea and nep-pbe
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.amse-aixmarseille.fr/sites/default/fil ... /wp_2024_-_nr_07.pdf (application/pdf)

Related works:
Journal Article: Conditioning public pensions on health: effects on capital accumulation and welfare (2024)
Working Paper: Conditioning public pensions on health: effects on capital accumulation and welfare (2024)
Working Paper: Conditioning Public Pensions on Health: Effects on Capital Accumulation and Welfare (2024)
Working Paper: Conditioning public pensions on health: effects on capital accumulation and welfare (2022)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aim:wpaimx:2407

Access Statistics for this paper

More papers in AMSE Working Papers from Aix-Marseille School of Economics, France AMU-AMSE - 5-9 Boulevard Maurice Bourdet, CS 50498 - 13205 Marseille Cedex 1. Contact information at EDIRC.
Bibliographic data for series maintained by Gregory Cornu ().