Conditioning public pensions on health: effects on capital accumulation and welfare

Giorgio Fabbri, Marie-Louise Leroux, Paolo Melindi-Ghidi and Willem Sas

Working Papers from Grenoble Applied Economics Laboratory (GAEL)

Abstract: This paper develops an overlapping generations model which 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 during old age, by introducing a component which is indexed to society’s average level of disability. This way, reducing disability during old age lowers the pension benefit as the need to finance long-term care services also drops. We then study the effects of introducing such a ‘comprehensive’ social security system on individual decisions, capital accumulation, and welfare. We first show that under certain conditions, health investments can boost savings and capital accumulation in the long run. Second, we show that if individuals are sufficiently concerned with their health when old, it is optimal to introduce a health-dependant 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: 29 pages
Date: 2022-12
New Economics Papers: this item is included in nep-age, nep-dem, nep-dge, nep-hea and nep-pbe
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https://gael.univ-grenoble-alpes.fr/sites/default/ ... 2022/gael2022-05.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 (2024)
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Persistent link: https://EconPapers.repec.org/RePEc:gbl:wpaper:2022-05

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