Growth and welfare effects of health care in knowledge based economies

Michael Kuhn and Klaus Prettner

We study the effects of a labor-intensive health care sector within an R&D-driven growth model with overlapping generations. Health care increases longevity and labor participation/productivity. We examine under which conditions expanding health care enhances growth and welfare. Even if the provision of health care diverts labor from productive activities, it may still fuel R&D and economic growth if the additional wealth that comes with expanding longevity translates into a more capital/machine- intensive final goods production and, thereby, raises the return to developing new machines. We establish mild conditions under which an expansion of health care beyond the growth-maximizing level is Pareto-improving.

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Year of publication:	2012
Authors:	Kuhn, Michael ; Prettner, Klaus
Publisher:	Göttingen : Courant Research Centre
Subject:	endogenous growth \| mortality \| (Blanchard) overlapping generations \| health care \| research and development \| sectoral composition \| Endogenes Wachstumsmodell \| Endogenous growth model \| Theorie \| Theory \| Sterblichkeit \| Mortality \| Overlapping Generations \| Overlapping generations \| Wohlfahrtsanalyse \| Welfare analysis \| Gesundheitsversorgung \| Health care \| Technischer Fortschritt \| Technological change \| Gesundheitswesen \| Health care system \| Innovation \| Gesundheitskosten \| Health care costs