Public and Private Expenditures on Health in the Presence of Inequality and Endogenous Mortality: A Political Economy Perspective

In this paper we study an overlapping-generations model in which agents� mortality risks, and consequently impatience, are endogenously determined by private and public investment in health care. The proportion of revenues allocated for public health care is also endogenous, determined as the outcome of a voting process. Higher substitutability between public and private health is associated with a �crowding-out� effect which leads to lower public expenditures on health care in the political equilibrium. This in turn impacts on mortality risks and impatience leading to a greater persistence in inequality and long run distributions of wealth that are bimodal.