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HEALTH INVESTMENT OVER THE LIFE-CYCLE

Published online by Cambridge University Press:  11 July 2017

Timothy J. Halliday ,
Hui He ,
Lei Ning  and
Hao Zhang
Timothy J. Halliday
Affiliation:
University of Hawai'i, IZA and University of Hawai'i Economic Research Organization
Hui He*
Affiliation:
Shanghai University of Finance and Economics and International Monetary Fund
Lei Ning
Affiliation:
Shanghai University of Finance and Economics
Hao Zhang
Affiliation:
Renmin University of China
*
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.
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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.

Keywords

Quantitative MacroeconomicsLife CycleMedical ExpenditureSocial Security
Type
Articles
Information
Macroeconomic Dynamics , Volume 23 , Issue 1 , January 2019 , pp. 178 - 215
Copyright
Copyright © Cambridge University Press 2017 

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Footnotes

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.

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