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on Dynamic General Equilibrium |
| By: | Ehrlich, Isaac (University at Buffalo, SUNY); Yin, Yong (University at Buffalo, SUNY) |
| Abstract: | The apparently unrelenting growth in the GDP-share of health spending (SHS) has been a perennial issue of policy concern. Does an equilibrium limit exist? The issue has been left open in recent dynamic models which take income growth and population aging as given. We view these variables as endogenously determined within an overlapping-generations, human-capital-based endogenous-growth model, where a representative parent makes all life-cycle consumption and investment decisions, and life and health protection are subject to diminishing returns. Our prototype model, allowing for both quantity and quality of life as desired goods, yields equilibrium upper bounds for SHS. Our calibrated simulations also account for observed trends in reproductive choices, population aging, life expectancy, and economic growth. The analysis offers new insights about factors that drive long-term trends in aging and health spending and establishes a direct relation between health investments at young age and the equilibrium, steady-state rate of economic growth. |
| Keywords: | endogenous growth, population aging, human capital, health spending, life protection, life expectancy |
| JEL: | I1 I15 O4 E24 |
| Date: | 2014–01 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp7928&r=dge |
| By: | Kaiji Chenz (Department of Economics, Emory University, Atlanta); Ayse Imrohoroglu (Department of Finance and Business Economics, Marshall School of Business, University of Southern California) |
| Abstract: | In 2011, the publicly held debt-to-GDP ratio in the United States reached 68% and is expected to continue rising. Many proposals to curb the government deficit and the resulting debt are being discussed. In this paper, we use the standard neoclassical growth model to examine the future path of output, budget deficits, and debt in the U.S. economy under different tax policies. While this framework is relatively simple, it incorporates the general equilibrium effects of tax policy, which are often missing from the Congressional Budget Office projections. Our results show that debt-to-GNP ratios above 100% are likely to continue into the future and that even small labor supply elasticities have a significant impact on these projections. We also find that labor income tax rates higher than 40% are needed for the deficit-to-GNP ratio to return to its historical level in the long run. Such high tax rates, however, result in about 10% lower per capita GNP and large welfare costs at the steady state compared to the historical tax rates. |
| Keywords: | Tax distortion; Dynamic Laffer Curve; Debt-to-GNP Ratio. |
| JEL: | E27 E62 H68 |
| Date: | 2014–02 |
| URL: | http://d.repec.org/n?u=RePEc:koc:wpaper:1401&r=dge |