Skip to main content
×
Home
    • Aa
    • Aa

HEALTH INVESTMENT OVER THE LIFE-CYCLE

  • Timothy J. Halliday (a1), Hui He (a2), Lei Ning (a3) and Hao Zhang (a4)
Abstract

We quantify what drives the rise in medical expenditures over the life-cycle using a stochastic dynamic overlapping generations model of health investment. Three motives for health investment are considered. First, health delivers a flow of utility each period (the consumption motive). Second, better health enables people to allocate more time to productive or pleasurable activities (the investment motive). Third, better health improves survival prospects (the survival motive). We find that, overall, the consumption motive plays a dominant role, whereas the investment motive is more important than the consumption and survival motives until the forties. The survival motive is quantitatively less important when compared to the other two motives. We also conduct a series of counter-factual policy experiments to investigate how government policies impacting health insurance coverage, Social Security, and health care technological progress affect the behavior of medical expenditures, and social welfare.

Copyright
Corresponding author
Address correspondence to: Hui He, Institute for Capacity Development, International Monetary Fund, 700 19th Street NW, Washington, DC 20431, USA; e-mail: hhe@imf.org.
Footnotes
Hide All

We thank Carl Bonham, Michele Boldrin, Toni Braun, Kaiji Chen, Sumner La Croix, Kevin Huang, Selo Imrohoroglu, Sagiri Kitao, Nobu Kiyotaki, Dirk Krueger, Zheng Liu, Andy Mason, Makoto Nakajima, Michael Palumbo, Richard Rogerson, Richard Suen, Motohiro Yogo, Kai Zhao, seminar participants at the Chinese University of Hong Kong, the Federal Reserve Board, George Washington University, Hong Kong University of Science and Technology, Peking University, Shanghai University of Finance and Economics, University of Hawai'i at Mānoa, Utah State University, and conference participants at the 2009 Midwest Macroeconomics Meeting, 2009 QSPS Summer Workshop, 2009 Western Economic Association International (WEAI) Meeting, 15th International Conference on Computing in Economics and Finance in Sydney, 2010 Tsinghua Workshop in Macroeconomics, and 2010 SED Annual Meeting for helpful feedback. We thank Jesus Fernandez-Villaverde for providing us consumption data. Financial support from the College of Social Sciences at the University of Hawai'i at Manoa is gratefully acknowledged. Hui He thanks research support sponsored by Shanghai Pujiang Program (No. 2013140026) and the Program for Professor of Special Appointment (Eastern Scholar) at Shanghai Institutions of Higher Learning (No. 2013140034). Lei Ning thanks research support from the Fundamental Research Funds for the Central Universities (SUFE) (2017110133) and China Postdoctoral Science Foundation (Grant No. 2017M611515). Most of the work related to the paper was done when Hui He was a faculty member at Shanghai University of Finance and Economics (SHUFE). Therefore, the views expressed in this paper are those of the authors and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.

Footnotes
Linked references
Hide All

This list contains references from the content that can be linked to their source. For a full set of references and notes please see the PDF or HTML where available.

Orazio Attanasio , Sagiri Kitao and Giovanni L. Violante (2010) Financing medicare: A general equilibrium analysis. In Demography and the Economy, pp. 333366. Chicago, IL: University of Chicago Press.

Michael Baker , Mark Stabile and Catherine Deri (2004) What do self-reported, objective, measures of health measure? Journal of Human Resources 39, 10671093.

John Bound (1991) Self-reported versus objective measures of health in retirement models. Journal of Human Resources 26, 106138.

James Bullard and James Feigenbaum (2007) A leisurely reading of the life-cycle consumption data. Journal of Monetary Economics 54, 23052320.

Marco Cagetti and Mariacristina De Nardi (2008) Wealth inequality: Data and models. Macroeconomic Dynamics 12, 285313.

Marco Cagetti and Mariacristina De Nardi (2009) Estate taxation, entrepreneurship, and wealth. American Economic Review 99, 85111.

Christopher D. Carroll (1997) Buffer-stock saving and the life cycle/permanent income hypothesis. Quarterly Journal of Economics 112, 155.

Juan Carlos Conesa , Sagiri Kitao and Dirk Krueger (2009) Taxing capital? Not a bad idea after all! American Economic Review 99, 2548.

Mariacristina De Nardi , Eric French and John Bailey Jones (2010) Why Do the Elderly Save? The Role of Medical Expenses. Journal of Political Economy 118, 3975.

Angus Deaton (1992) Understanding Consumption. New York: Oxford University Press.

Jesus Fernandez-Villaverde and Dirk Krueger (2007) Consumption over the life cycle: Facts from consumer expenditure survey data. Review of Economics and Statistics 89, 552565.

Amy Finkelstein , Erzo F. P. Luttmer and Matthew J. Notowidigdo (2013) What good is wealth without health? The effect of health on the marginal utility of consumption. Journal of the European Economic Association 11, 221258.

Eric French (2005) The effects of health, wealth, and wages on labour supply and retirement behaviour. Review of Economic Studies 72, 395427.

Donna B. Gilleskie (1998) A dynamic stochastic model of medical care use and work absence. Econometrica 66, 145.

Michael Grossman (1972) On the concept of health capital and the demand for health. Journal of Political Economy 80, 223–55.

Robert E. Hall and Charles I. Jones (2007) The value of life and the rise in health spending. Quarterly Journal of Economics 122, 3972.

Jonathan Heathcote , Kjetil Storesletten and Giovanni L. Violante (2010) The macroeconomic implications of rising wage inequality in the United States. Journal of Political Economy 118, 681722.

He Huang , Selahattin Imrohoroglu and Thomas J. Sargent (1997) Two computations to fund social security. Macroeconomic Dynamics 1, 744.

Kevin X. D. Huang and Gregory W. Huffman (2014) Unemployment and welfare implications of the current US tax treatment of employer-provided medical insurance. Macroeconomic Dynamics 18, 15471580.

Mark Huggett (1996) Wealth distribution in life-cycle economies. Journal of Monetary Economics 38, 469494.

Ayse Imrohoroglu , Selahattin Imrohoroglu and Douglas H. Joines (1995) A life cycle analysis of social security. Economic Theory 6, 83114.

Selahattin Imrohoroglu and Sagiri Kitao (2009) Labor supply elasticity and social security reform. Journal of Public Economics 93, 867878.

Karsten Jeske and Sagiri Kitao (2009) U.S. tax policy and health insurance demand: Can a regressive policy improve welfare? Journal of Monetary Economics 56, 210221.

Thomas Kniesner , W. Kip Viscusi , Christopher Woock and James P Ziliak (2012) The value of a statistical life: Evidence from panel data. Review of Economics and Statistics 94, 7487.

Lee A. Lillard and Robert J. Willis (1978) Dynamic aspects of earning mobility. Econometrica 46, 9851012.

Ellen Meara , Chapin White and David M. Cutler (2004) Trends In medical spending by age, 1963–2000. Health Affairs 23, 176183.

Costas Meghir and Luigi Pistaferri (2004) Income variance dynamics and heterogeneity. Econometrica 72, 132.

Michael G. Palumbo (1999) Uncertain medical expenses and precautionary saving near the end of the life cycle. Review of Economic Studies 66, 395421.

Melinda Podor and Timothy Halliday (2012) Health status and the allocation of time. Health Economics 21, 514527.

John Rust and Christopher Phelan (1997) How social security and Medicare affect retirement behavior in a world of incomplete markets. Econometrica 65, 781831.

Motohiro Yogo (2016) Portfolio choice in retirement: Health risk and the demand for annuities, housing, and risky assets. Journal of Monetary Economics 80, 1734.

Kai Zhao (2014) Social security and the rise in health spending. Journal of Monetary Economics 64, 2137.

Recommend this journal

Email your librarian or administrator to recommend adding this journal to your organisation's collection.

Macroeconomic Dynamics
  • ISSN: 1365-1005
  • EISSN: 1469-8056
  • URL: /core/journals/macroeconomic-dynamics
Please enter your name
Please enter a valid email address
Who would you like to send this to? *
×

Keywords:

Metrics

Full text views

Total number of HTML views: 0
Total number of PDF views: 9 *
Loading metrics...

Abstract views

Total abstract views: 22 *
Loading metrics...

* Views captured on Cambridge Core between 11th July 2017 - 23rd July 2017. This data will be updated every 24 hours.