Invest-as-You-Go: Public Health Investment, Long-Term Care and Welfare

22 Pages Posted: 25 Nov 2015

See all articles by Paolo Melindi-Ghidi

Paolo Melindi-Ghidi

Aix-Marseille University - Aix-Marseille School of Economics

Willem Sas

KU Leuven - Faculty of Business and Economics (FEB)

Date Written: November 2015

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.

Keywords: Public Health Investment, Overlapping Generations (OLG), Long-Term Care, PAYG Pension System, Compression of Morbidity

JEL Classification: H55, I15, O41

Suggested Citation

Melindi-Ghidi, Paolo and Sas, Willem, Invest-as-You-Go: Public Health Investment, Long-Term Care and Welfare (November 2015). Available at SSRN: https://ssrn.com/abstract=2694971 or http://dx.doi.org/10.2139/ssrn.2694971

Paolo Melindi-Ghidi (Contact Author)

Aix-Marseille University - Aix-Marseille School of Economics ( email )

2 rue de la Charité
Marseille, 13236
France

Willem Sas

KU Leuven - Faculty of Business and Economics (FEB) ( email )

Naamsestraat 69
Leuven, B-3000
Belgium

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