Endogenous longevity, public debt and endogenous growth

ABSTRACT

This study explores the mechanism that causes an inverted U-shaped relationship between the public debt to GDP ratio and the economic growth rate which is observed in empirical studies. We show that this relationship is caused even when the government does not introduce the golden rule of public finance, and government health care expenditure has important role in generating this relationship.

KEYWORDS:

• Endogenous longevity
• public debt
• endogenous growth

JEL CLASSIFICATION:

• E62
• H63
• O41

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ In the recent studies, Menuet, Minea and Villieu (2017) suggest the possibility in which an increase in public debt has a nonlinear effect on the economic growth rate using a cash-in-advance models.

² Although Figure 1 includes both public and private health care investment due to data availability, the ratio of public investment to total investment is almost 0.8, according to the World Bank Database.

³ Hashimoto and Tabata (2005) adopt a similar assumption regarding health care expenditure.

⁴ The savings of individuals whose members died are allocated to individuals whose members are alive in the same generation.