“Health Spending, Savings, and Fertility in a Lifecycle-dynastic Model with Longevity Externalities”

Siew Ling Yew, Monash University

Jie Zhang, Chongqing University and National University of Singapore

We investigate health spending, savings, and fertility in a lifecycle-dynastic model with longevity externalities in annuity returns and policy implications. We show that such externalities engender not only excessive health spending but also under- savings and excessive fertility. Social security and health subsidization increase health spending and savings but reduce fertility from laissez-faire levels, whereas public health can control health spending and raise fertility. Using social security and public health together can obtain socially-optimal levels of health spending, savings, longevity, and fertility. Numerical results based on U.S. observations suggest substantial variations, especially in old-age health spending, among these cases.