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

Giorgio Fabbri, Marie-Louise Leroux, Paolo Melindi-Ghidi and Willem Sas
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Willem Sas: University of Stirling, UHasselt - Hasselt University, CESifo, Munich, UCL - Université Catholique de Louvain = Catholic University of Louvain, Department of Economics [Leuven] - KU Leuven - Catholic University of Leuven = Katholieke Universiteit Leuven

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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: PAYG Pension System; Disability; Overlapping Generations; Long-term Care; Curative Health Investments (search for similar items in EconPapers)
Date: 2024-02
Note: View the original document on HAL open archive server: https://hal.science/hal-04492428
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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)
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