Invest as you go: how public health investment keeps pension systems healthy

Paolo Melindi-Ghidi and Willem Sas ()

No 502095, Working Papers of Department of Economics, Leuven from KU Leuven, Faculty of Economics and Business (FEB), Department of Economics, Leuven

Abstract: Better health not only boosts longevity in itself, it also postpones the initial onset of disability and chronic infirmity to a later age. In this paper we examine the potential effects of such 'compression of morbidity' on pensions, and introduce a health-dependent dimension to the standard pay-as-you-go (PAYG) pension scheme. Studying the long-term implications of such a system in a simple overlapping generations framework, we find that an increase in public health investment can augment capital accumulation in the long run. Because of this, the combination of health investment with a partially health-dependent PAYG scheme may in fact outperform a purely PAYG system in terms of lifetime welfare.

Date: 2015-07-04
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Published in AMSE WP 2015 - Nr25 , pages 1-23

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Working Paper: Invest as You Go: How Public Health Investment Keeps Pension Systems Healthy (2015)
Working Paper: Invest as You Go: How Public Health Investment Keeps Pension Systems Healthy (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:502095

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