Invest-as-you-go: public health investment, long-term care and welfare

Paolo Melindi-Ghidi and Willem Sas

No 515275, 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 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 implications of this `long-term care augmented' system in an overlapping generations framework, public health investment is analytically shown to boost savings and capital accumulation in the long run. Because of this multiplier effect, a partially health-dependent PAYG scheme will outperform a regular PAYG system in terms of lifetime welfare, as indicated by our numerical calculations.

Date: 2015-11
Note: paper number DPS 15.28
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Published in CES - Discussion paper series,, pages 1-22

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Persistent link: https://EconPapers.repec.org/RePEc:ete:ceswps:515275

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