Health spending, savings and fertility in a lifecycle-dynastic model with longevity externalities

We investigate health spending, savings, fertility and policy implications in a lifecycle-dynastic model with longevity externalities in annuity returns. We show that such externalities engender not only excessive health spending but also under-saving and excessive fertility. Social security and health subsidization increase health spending and savings but reduce fertility from laissez-faire levels. A publicly funded universal health system under labour-income taxation raises fertility. Taxing health spending or using social security and public health together can obtain socially optimal health spending, savings, longevity and fertility. Numerical results based on US observations suggest substantial variations among these cases, especially in old-age health spending.