Abstract

The aim of this paper is to examine the dynamic interdependence between wealth accumulation and health change with government health policy. The paper focuses on how government health policy affects health change, economic growth and the dynamics of government debt within a dynamic general equilibrium framework proposed by Zhang. Economic growth, health change and government debt dynamics are interrelated with different preferences and government health policy. After building the general equilibrium model, it is demonstrated that the movement of the economic system is provided by three nonlinear differential equations. We simulate the differential equations and show how the economic system moves from its initial state. A comparative dynamic analysis is conducted in order to examine how changes in some exogenous conditions affect short-run transitory processes and the equilibrium structure.

Highlights

  • One’s health condition is generally considered to be a significant determinant of economic growth in literature addressing growth and health (e.g., Grossman, 1972; Ehrlich and Chuma, 1990; Acemoglu and Johnson, 2007; Chen et al, 2014; Zhang, 2018)

  • The paper studies the dynamic interdependence between wealth accumulation and health accumulation with government health policy

  • We were concerned with government debts and health policy in a dynamic general equilibrium analytical framework

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Summary

Introduction

One’s health condition is generally considered to be a significant determinant of economic growth in literature addressing growth and health (e.g., Grossman, 1972; Ehrlich and Chuma, 1990; Acemoglu and Johnson, 2007; Chen et al, 2014; Zhang, 2018). There are some theoretical studies about dynamic interactions between growth and health, there are only a few theoretical models that explicitly take account of government debts in literature on growth and health. We study the dynamics of debts with government health policy and different taxes in a competitive economy. Neoclassical growth theory treats wealth accumulation as the engine of growth (Solow, 2000; Burmeister and Dobell, 1970; and Zhang, 2005). We follow this tradition and add health dynamics following the approach by Grossman (1972). The simulation plots the movement of the system for a short period of time and identifies an unstable equilibrium point; Section 3 conducts a comparative dynamic analysis in different parameters to show how the paths of economic development are affected by exogenous changes in the environment

The Basic Model
The Dynamics and Properties
Short-Run Comparative Dynamic Analysis
The government increases the health subsidy rate
The propensity to consume healthcare is increased
Health productivity is enhanced
The total factor productivity of the industrial sector is enhanced
The efficiency of healthcare rises
The tax rate on the industrial sector rises
The household augments the propensity to save
Findings
Conclusions
Full Text
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