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Tax financed government health expenditure and growth with capital deepening externality
Abstract
This paper develops a two-sector endogenous growth model with health capital and examines the impact tax financed health expenditure has on long-run growth. In this model, health capital is accumulated through government spending as a flow channel and a capital deepening externality as a stock channel. When arguing about the problem of growth maximizing flat tax, the latter channel plays a significant role for determining tax rate.
... In equation (23), the total factor productivity in the Solow model is x A and the Solow residual is A y k k x x ε + . By equations (4), (20) and (21), we obtain [ ] ...
... Under the assumptions of (2'), (3') and (3''), similar to subsection 3.1, we can prove that there exist unit * k and * c satisfying equations (20) and (21). By this result, we have ...
... there exist two equilibria in the economy. Where h' -1 (.) denotes the inverted function of h'(.) and * c is determined by the equations of (20) and (21). Furthermore, the lower steady state is unstable and the higher steady state is stable. ...
Based on Robert Fogel's research, assuming that consumption not only raises agents' utility but also increases agents' health, we take a new look at the relationship between capital accumulation and consumption and discuss the effect of health on economic growth in an extended Ramsey model. This paper has two important features: 1) the interaction of health and consumption, which allows us to study health and long-run economic growth in an aggregate macroeconomic model; 2) the existence of multiple equilibria of capital stock, health, and consumption, which speaks to the reality that rich countries may end up with higher capital, better health, and higher consumption levels than poor countries.
... Therefore, the level of output per unit of technology under the technology level A 1 is y 1 /A 1 . When the technology level improves from A 1 to A 2 , by equations (20) and (21), the ratio of consumption to health human capital will improve from * 1 c to * 2 c and the ratio of physical capital to health human capital from * 1 k to * 2 k . As a result, the steady state in figure 2(A) will change from Point E 1 to Point E 2 and health human capital will improve from * 1 h to * 2 h . ...
... . By equations (4), (20) and (21), we obtain ...
... Under the assumptions of (2'), (3') and (3''), similar to subsection 3.1, we can prove that there exist unit * k and * c satisfying equations (20) and (21). By this result, we have ...
According to Robert Fogel (1994a, 1994b), nutrition is the driving force for the increase in health human capital, which in turn has significantly promoted economic growth in the long run. In this paper, we take Fogel¡¯s finding to extend the standard Ramsey model by including the effect of consumption on nutrition and health human capital formation. It is demonstrated that there exist multiple equilibria in the modified Ramsey model with a subsistence level of consumption. That is to say, different countries may end up with different levels of long-run consumption, nutrition, health human capital, and physical capital.
... Therefore, in such a situation, health investment may impede the progress of economic growth. By introducing the effects of skill-driven technological change (henceforth SDTC) into the Muysken (2001, 2003) framework, Hosoya (2002Hosoya ( , 2003 further investigated the relationships among economic growth, average health level, labor allocation, and longevity of the population in an endogenous growth model that integrates SDTC and human capital accumulation through formal schooling with health human capital accumulation. In addition, through integrating the accumulation of human capital, innovation in medical technology, health and longevity into a four-sector (education, consumption goods, R&D sector devoted to health research, and health goods) endogenous growth model with "keeping up with the Jones" preferences and an altruism utility function, Sanso and Asia (2006) also studied the bidirectional interaction between health and economic growth. ...
... All these factors lead to healthier people with higher productivity. Therefore, it is very rational and natural for the health variable to enter the production function, just as Barro (1996), Issa (2003), Hosoya (2002Hosoya ( , 2003, Muysken, et al. (1999), Muysken (2001, 2003), Weil (2007) did. Furthermore, just as what Fogel (2002, p.24) observed, the contribution of nutrition and health to economic growth may be thought of as labor-enhancing technological changes. ...
This paper studies capital accumulation and consumption in the traditional Ramsey model under an exogenous growth framework. The model has three important features: (1) treating health as a simple function of consumption, which enable the study of health and growth in an aggregate macroeconomic model; (2) the existence of multiple equilibria of capital stock, health, and consumption, which is more consistent with the real world situation-rich countries may end up with high capital, better health, and higher consumption than poor countries; (3) the fundamental proposition of a consumption tax instead of capital taxation from the traditional growth model does not hold anymore in our model. As long as consumption goods contribute to health formation, the issue of a consumption tax versus an income (or capital) tax should be re-examined.
... The life cycle hypothesis of a researcher and the overlapping generation's model of another researcher study the effect of social security on the saving [9,10]. A researcher also suggested that the substitution effect of social insurance led to the decrease of total savings, which led to the slow economic growth in 1960s to 1970s in the United States [11]. Study showed while the decline of the savings rate in the United States after World War II, all kinds of insurance, the unemployment, pension, disability benefits and health insurance continue to increase, and make the conclusion that medical insurance payment instead of self-pay can reduce 12% of the savings [12]. ...
... in relatively wealthy countries, our work also relates closely to a smaller set of theoretical contributions focusing on the effects of the decisions of individual agents to maximize, in addition to consumption, also their life expectancy (time horizon). These include Ehrlich and Chuma (1990), de la Croix and Licandro (1999), Pueyo (2004a, 2004b), Finlay (2006), Agénor (2008Agénor ( , 2010 and Hosoya (2009). Our approach is most closely related to Blanchard's (1985) seminal contribution and more recently Faruqee (2003) in which agents' decisions impact the time discount rate. ...
... 3 Lucas (1988) argued that investment in (that is, time dedicated to) schooling increases the stock of human capital and the long run rate of growth. Similarly, government spending on research and development (Romer, 1990), on schooling (Becker (1993), Glomm andRavikumar (1992), Mincer (1974), Willis and Rosen (1979), Willis (1986)), on health (Barro (1996), Bloom et al, (2001), de la Croix and Doepke (2004), Galor and Mayer (2002), Hosoya (2003), Howitt (2002), Van Zon and ...
The paper examines the effects on growth of both private and public investment in health, schooling and culture: in short, education. These expenditures exert two effects on the growth rate: (i)they increase labour and capital stock productivity through a positive externality, and (ii) they modify saving and investment decisions through the substitutability between education and private consumption. The different effects on economic growth of publicly financed education and private investment in education are investigated. The optimal growth rate depends on households' preferences for education. Moreover, there will be always an optimal tax rate that produces the same rate of growth in alternative regimes, private and public, of education financing. Universalistic public education exerts a strong positive externality on the economic efficiency but - unlike private investments - it does not create sufficient incentives through income differentials to change consumer preferences for education. .
... The rest of the paper is organized as follows. Section 2 explains briefly a simple baseline model presented by Hosoya (2003) . In section 3, we first investigate theoretically the speed of convergence for the corresponding model. ...
January 8, 2005 In this paper we will show that for empirically plausible parameter values, a two-sector growth model contained health capital can yield a slow speed adjustment process. Calibrating the model, we demonstrate that in the case of a capital deepening externality in the health sector has relatively weak impact on additional health capital production and income tax rates which finance public health expenditure are at realistically reasonable levels, a slower speed of convergence occurs. Such slower adjustment process is consistent with the standard empirics on convergence. Consequently, we stress the good harmonization between a calibration-based theoretical prediction and the corresponding evidence. 科学研究費補助金（特定領域研究） = Grant-in-Aid for Scientific Research on Priority Areas
تهدف هذه الدراسة إلى تحليل اتجاهات ومحددات البطالة في المملكة الأردنية الهاشمية بالاعتماد على البيانات السنوية لمعدل البطالة كمتغير معتمد وعدد من المتغيرات المستقلة المتمثلة بـ (عرض النقد، المساعدات الخارجية، النفقات الاستثمارية الحكومية، عدد السكان، معدل التضخم، سعر الفائدة الحقيقي، إجمالي التكوين الرأسمالي الثابت، الناتج المحلي الإجمالي) ولسلسلة زمنية تمتد من سنة 1991 ولغاية 2013، وتبين من خلال الدراسة بأن معدلات البطالة كانت مرتفعة لدى الإناث مقارنة مع الذكور حيث بلغ المتوسط الحسابي لمعدل البطالة لدى الإناث (25.10%) في حين بلغ المتوسط لدى الذكور (12.47%) خلال مدة الدراسة ؛ بالإضافة إلى ذلك فان معدل البطالة كان شديد الحساسية للتغيرات الحاصلة في النفقات الاستثمارية الحكومية وسعر الفائدة الحقيقي في حين كان أقل حساسية للتغيرات الحاصلة في عرض النقد، المساعدات الخارجية، معدل نمو السكان، معدل التضخم، إجمالي التكوين الرأسمالي الثابت، الناتج المحلي الإجمالي .
In recent years, there has been an explosive increase in the demand for health products and services by people all around the globe, and particularly in advanced economies. Aiming to enhance longevity and also to improve quality of life, individual consumption of pharmaceutical products and services has risen exponentially since the early 1980s. This paper develops a model in which agents invest part of their resources in medical products and time in physical exercise to enhance their health status. In the first part of the paper, we study the steady state and transitional dynamics of the model with special emphasis on the effects of health decisions on aggregate outcomes. In the second part, we explore how public health policies may alter private economic decisions that promote healthier and more productive lives.
تهدف هذه الدراسة إلى تحليل اتجاهات ومحددات البطالة في المملكة الأردنية الهاشمية بالاعتماد على البيانات السنوية لمعدل البطالة كمتغير معتمد وعدد من المتغيرات المستقلة المتمثلة بـ (عرض النقد، المساعدات الخارجية، النفقات الاستثمارية الحكومية، عدد السكان، معدل التضخم، سعر الفائدة الحقيقي، إجمالي التكوين الرأسمالي الثابت، الناتج المحلي الإجمالي) ولسلسلة زمنية تمتد من سنة 1991 ولغاية 2013، وتبين من خلال الدراسة بأن معدلات البطالة كانت مرتفعة لدى الإناث مقارنة مع الذكور حيث بلغ المتوسط الحسابي لمعدل البطالة لدى الإناث (25.10%) في حين بلغ المتوسط لدى الذكور (12.47%) خلال مدة الدراسة ؛ بالإضافة إلى ذلك فان معدل البطالة كان شديد الحساسية للتغيرات الحاصلة في النفقات الاستثمارية الحكومية وسعر الفائدة الحقيقي في حين كان أقل حساسية للتغيرات الحاصلة في عرض النقد، المساعدات الخارجية، معدل نمو السكان، معدل التضخم، إجمالي التكوين الرأسمالي الثابت، الناتج المحلي الإجمالي .
This paper proposes a theoretical method to account for historical episodes of growth disparity. A numerical computation shows that the properties of the local dynamics of the proposed model are consistent with the facts indicated by selected episodes.
This paper analyzes the effect of health investment, and hence of health capital, on physical capital accumulation and long-run economic growth in an extended Ramsey model with an Arrow–Romer production function and a Grossman (1972) utility function. The paper concludes that economic growth is related to both the health growth rate and the health level. While growth in health capital always facilitates economic growth, the gross effect of health level on the rate of economic growth depends on how it affects physical capital accumulation. If the negative effect of health on economic growth through its influence on physical capital accumulation is not taken into consideration, then health level has a positive effect on the rate of economic growth by improving the efficiency of labor production. However, since health investment may crowd out physical capital investment and thus influence physical capital accumulation, excessive investment in health may have a negative effect on economic growth. Empirical tests of these theoretical hypotheses using panel data from individual provinces of China produce results that are consistent with our theoretical conclusions.
This paper aims at providing a simple economic framework to address the question of the optimal share of investments in medical R&D in total public spending. In order to capture the long-run impact of tax-financed medical R&D on the growth rate, we develop an endogenous growth model in the spirit of Barro (1990). The model focuses on the optimal sharing of public resources between consumption and (non-health) investment, medical R&D and other health expenditures. It emphasizes the key role played by the public health-related R&D in enhancing economic growth and welfare in the long run.
This paper divides the expenditure of local government into the productive and nonproductive expenditure for revealing the
effect of local government’s expenditure on output-capital efficiency through model and empirical analysis. In general, the
elasticity of productive expenditure is more than that of nonproductive in a developing country. Therefore, the drawing effect
of productive expenditure on economic growth is more than nonproductive one. However, the positive drawing effect of local
government’s expenditure on the ratio of output to capital can be displayed only if the expenditure is within a reasonable
scale. When the public expenditure has surpassed the limit, there will be a negative influence. Through our empirical analysis
on current Chinese economic data, it shows that the positive drawing effect of local government productive expenditure on
the ratio of output to capital is remarkable; however, the positive effect of expenditure on economic construction is critically
small. In some areas, the government expenditure behavior has indirectly become the economic intervention and it reveals the
negative effect and low efficiency in high speed of economic growth. It is imperative for Chinese government to improve the
efficiency of economic growth by adjusting the expenditure structure of local government.
Keywordsratio of output to capital–productive expenditure–nonproductive expenditure
This paper studies the optimal allocation of government spending between infrastructure and health (which affects labor productivity as well as household utility) in an endogenous growth framework. A key feature of the model is that infrastructure affects not only the production of goods but also the supply of health services. The rate of time preference is also endogenously related to health outcomes. The first part considers the case where health enters as a flow in production and utility, whereas the second focuses on a “stock” approach. Growth- and welfare-maximizing rules for income taxation and the allocation of public spending are derived.
Why do the countries of the world display considerable disparity in long-term growth rates? This paper examines the hypothesis that the answer lies in differences in national public policies that affect the incentives that individuals have to accumulate capital in both its physical and human forms. The authors' analysis of a calibrated two-sector endogenous growth model shows that the incentive effects of taxation can induce large differences in long-run growth rates. This influence of taxation on the rate of economic growth has important welfare implications: in basic endogenous growth models, the welfare cost of a 10 percent increase in the rate of income tax can be forty times larger than in the basic neoclassical model. Copyright 1990 by University of Chicago Press.
The authors study the problem of optimal taxation in three infinite-horizon, representative-agent endogenous growth models. The first model is a convex model in which physical and human capital are perfectly symmetric. The authors' second model incorporates elastic labor supply through a Lucas-style technology. Analysis of these two models points out the danger of assuming that government expenditures are exogenous. In their third model, the authors include government expenditures as a productive input in capital formation, showing that the limiting tax rate on capital is no longer zero. In numerical simulations, they find similar effects on growth and welfare in all three models. Copyright 1993 by University of Chicago Press.
Demonstrates that technical change is attributable to experience. The cumulative production of capital goods is used as the index of experience. New capital goods are assumed to completely embody technical change. The assumption is made that the model will be operating in an environment of full employment although reference is made throughout to the case of capital shortage. The implications of this model on wage earners are discussed, and profits and investments are examined. The rate of return is determined by the expected rate of increase in wages, current labor costs per unit output, and the physical lifetime of the investment. Learning is an act of investment that benefits future investors. Further analysis shows that the socially optimal ratio of gross investment to output is higher than the competitive level. (SRD)
In this paper we are concerned with the equilibrium dynamics of a two-sector model of endogenous growth with distortionary taxes. We show that for certain parameters values and tax schemes every equilibrium orbit—except the steady state solution—is non-interior; i.e., there are times in which one of the sectors is inactive. This analysis confirms that in multisector models the set of easily checkable, universal conditions that can guarantee the interiority of equilibrium solutions is rather limited. Journal of Economic Literature Classification Numbers: D90, E22.
This paper offers further inquiry into sources of indeterminacy in general equilibrium. We take a more agnostic approach than previous work as we allow for a more general interpretation of externalities. In particular, we identify the origin of scale economies as being from either labor or capital. We find that in the one-sector model it is primarily the externalities associated with labor that generate the result. However, in the two-sector model, indeterminacy can be ultimately traced back to the externalities from capital in the investment sector.
This paper considers the prospects for constructing a neoclassical theory of growth and international trade that is consistent with some of the main features of economic development. Three models are considered and compared to evidence: a model emphasizing physical capital accumulation and technological change, a model emphasizing human capital accumulation through schooling, and a model emphasizing specialized human capital accumulation through learning-by-doing.
One strand of endogenous-growth models assumes constant returns to a broad concept of capital. The author extends these models to include tax-financed government services that affect production or utility. Growth and saving rates fall with an increase in utility-type expenditures; the two rates rise initially with productive government expenditures, but subsequently decline. With an income tax, the decentralized choices of growth and saving are "too low," but if the production function is Cobb-Douglas, the optimizing government still satisfies a natural condition for productive efficiency. Empirical evidence across countries supports some of the hypotheses about government and growth. Copyright 1990 by University of Chicago Press.
The focus of endogenous growth theory on human capital formation and the physical embodiment of knowledge in people, suggests the integration of the growth supporting character of health production and the growth generating services of human capital accumulation in an endogenous growth framework. We show that a slow down in growth may be explained by a preference for health that is positively influenced by a growing income per head, or by an ageing population. Growth may virtually disappear for countries with high rates of decay of health, low productivity of the health-sector, or high rates of discount.
In this paper we analyze growth and welfare effects of fiscal policy in an endogenous growth model along the balanced growth path. As to the model we assume that sustained per capita growth results from public investment. The government uses its tax revenue for investment in public capital, for investment subsidy and for transfer payments. We then analyze how the balanced growth rate reacts to variations in those policy variables. Further, we study welfare effects of varying the fiscal parameters and demonstrate that, in general, maximizing economic growth is not equivalent to maximizing welfare on the balanced growth path. Copyright Kluwer Academic Publishers 1998
In this paper we investigate the long-run effects of government spending and taxation in an endogenous growth setting. The model is a variant of Barro's model (1990) and Lucas's model (1988) in which human capital accumulation is driven by government spending on public education. To balance the budget the government levies a tax on output in two alternative specifications of the human capital accumulation equation. The results consolidate some recent findings that taxation, when it is used for productive purposes, may lead to faster growth. Growth rates increase with taxes up to a level around 60-70 per cent. Copyright 2000 by Blackwell Publishers Ltd and The Victoria University of Manchester
We examine a two-sector endogenous growth model with general constant-return-to-scale production technologies governing the evolution of human and physical capital. We prove the existence, uniqueness, and saddle-path stability of the balanced growth equilibrium. A dual approach drawing on techniques from international trade theory is used to provide complete characterization of the transitional dynamics of consumption, goods and education outputs, human and physical capital inputs, and the relative price of human capital investment. We investigate the long-run effects of changes in time preference and factor taxation, and show the emergence of instability or indeterminacy when factor taxes are too distortionary.Journal of Economic LiteratureClassification Number: D90.
In this paper, we present an overlapping-generations model, where individuals accumulate human capital through formal schooling. We model the role of the public sector in schooling as one of collecting taxes from households and providing inputs to the learning technology. Public expenditures on schools are determined endogenously. Under plausible restrictions, our model's predictions qualitatively match the observations on schooling, public expenditures on education, and student-teacher ratios. JEL Classification: E13, E62.
Accumulation de capital humain et dépenses publiques endogènes. Dans ce mémoire, les auteurs présentent un modèle de générations qui se chevauchent où les individus accumulent du capital humain via l'éducation formelle. Le rôle du secteur public dans l'éducation est défini comme celui de collecteur d'impôts auprès des ménages et de fournisseur d'intrants dans la technologie d'apprentissage. Les dépenses publiques en éducation sont déterminées de manière endogène. A partir de restrictions plausibles, les prédictions du modèle s'arriment qualitativement aux observations sur le monde scolaire, aux dépenses publiques en éducation, et aux ratios élèves/enseignants.
This paper develops an endogenous growth model with productive public capital along with private capital in a spirit similar to that of R. J. Barro (1990). Since the authors' model includes two stock variables, it has transitional dynamics unlike most of the previous studies on endogenous growth, including Barro's, where concerns are restricted to the steady state analysis. First, they show that the transitional path is unique and stable. Second, the character of the transitional path is explored. Third, the authors show that the optimal tax rate is smaller than the rate that maximizes the national growth rate with a log-linear utility function. Copyright 1993 by The editors of the Scandinavian Journal of Economics.
The paper constructs a model of endogenous growth where infrastructure is an accumulable stock generating a nonrival input service. A typical market economy cannot attain the socially optimum steady state path, since nonrivalry precludes competitive pricing of infrastructure. However, there exist agent specific prices for the infrastructural service, a price for the infrastructural stock, a rate of interest, and a subsidy for the representative household that can sustain the optimal path as a dynamic Lindahl equilibrium. The rates of return from physical and infrastructural capital equal the rate of interest. Investment programs are socially optimum. The government's budget is balanced. Copyright 2001 by Blackwell Publishing Inc.
Young adults observe the current interest rate, wage rate, and child mortality and decide about savings and the quantity and quality of their children. Human capital is produced as an external effect of expenditure on child quality and its production is subject to decreasing returns. Depending on the economic environment individuals decide on one of three different lifestyles. The first one generates stabilization at a low income level and high population growth, the second one generates the demographic transition and the third one perpetual growth of a modern economy. If the switch from Malthusian expansion in size towards demographic transition is not generated endogenously, a properly timed development program on education can manage the escape from the low--income equilibrium. Keywords: Demographic Transition, Economic Growth, Stages of Development JEL: J10, J13, 011, O12 I would like to thank Martin Brunner, Sean Holly, Andreas Pick, and participants of the Workshop for Demogra...