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Optimal savings and heallth spending over the life cycle

Tamara Fioroni ()

CHILD Working Papers from CHILD - Centre for Household, Income, Labour and Demographic economics - ITALY

Abstract: This paper investigates the relationship between saving and health spending in a two-period overlapping generations economy. Individuals work in the first period of life and live in retirement in old age. Health spending is an activity that increases the quality of life and longevity. Empirical evidence shows that both health spending and saving behave as luxury goods but their behavior differs markedly according to the level of per capita GDP. The share of saving on GDP has a concave shape with respect to per capita GDP, whereas the share of health spending on GDP increases more than proportionally with respect to per capita GDP. Their ratio is nonlinear with respect to income, i.e. first increasing and then decreasing. This ratio, in the proposed model, is equal to the ratio between the elasticity of the utility function with respect to saving and the elasticity of the utility function with respect to health.

Keywords: Intertemporal Choice; Health Spending; Adult Mortality; Saving (search for similar items in EconPapers)
JEL-codes: D91 I12 E21 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2009-02
New Economics Papers: this item is included in nep-age, nep-dge and nep-hea
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Journal Article: Optimal savings and health spending over the life cycle (2010) Downloads
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