| By: |
Giorgio Fabbri (Univ. Grenoble Alpes, CNRS, INRAE, Grenoble INP, GAEL);
Marie-Louise Leroux (Departement des Sciences Economiques, ESG-UQAM; CORE, Louvain-la-Neuve; CESifo, Munich);
Paolo Melindi-Ghidi (Aix-Marseille Univ., CNRS, AMSE, Marseille, France);
Willem Sas (University of Stirling; Hasselt University; CESifo, Munich; UCLouvain & KU Leuven) |
| 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: |
Curative Health Investments, PAYG Pension System, Disability, overlapping generations, long-term care |
| JEL: |
H55 I15 O41 |
| Date: |
2024–03 |
| URL: |
http://d.repec.org/n?u=RePEc:aim:wpaimx:2407&r=dem |