Is Health a Blessing? The Macroeconomic Effects of Health Conditions

Judith Méndez (), Hector Villarreal and Hermilo Cortés ()
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Judith Méndez: School of Government and Public Transformation, Tecnológico de Monterrey
Hermilo Cortés: School of Government and Public Transformation, Tecnológico de Monterrey

No 25, Working Paper Series of the School of Government and Public Transformation from School of Government and Public Transformation, Tecnológico de Monterrey

Abstract: This research develops a dynamic and stochastic partial equilibrium model with overlapping generations to simulate the effects of health condition, whether good or poor, on household consumption and indebtedness. While fiscal imbalances caused by pension system structures are currently a pressing issue, the effects of population health status will increasingly become evident in a country’s economy, particularly in consumption levels and indebtedness due to higher healthcare expenditures. Household savings levels would be under pressure to cope with unexpected expenses such as out-of-pocket health expenditures. In the model, these outof-pocket expenses are covered through a subsidy, and the government does not directly provide health services but operates a transfer scheme that partially insures households against catastrophic out-of-pocket health expenditures. In order to show the model’s capabilities, México will be used as case study. The results display a consumption pattern gap that worsens due to poor health conditions. Additionally, income levels stagnate around the same age at which the proportion of health-related expenditure needs begin to rise and increase relative to income levels. Long-term fiscal sustainability is at risk, not only due to the lack of current attention, but also resources allocated to adults and elderly could limit investment in the health of new generations, thereby compromising human capital in the future.

Keywords: Macroeconomic Equilibrium; Health Economics; Overlapping Generations; Life-Cycle Model; Out-of-Pocket Expenditures; Fiscal Sustainability; Population Aging; Income Inequality; Health Shocks; Precautionary Savings; Mexico (search for similar items in EconPapers)
JEL-codes: C38 H83 K42 O33 (search for similar items in EconPapers)
Pages: 37 pages
Date: 2026-02
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