Dobrescu, Loretti Isabella (2008) Essays on health and savings: cross - country evidence. [Ph.D. thesis]
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The main objective of the present work is to shed light on aspects concerning, on the one hand, health, health spending and intra-family cohesion (strength of family ties), and on the other hand, savings, demographics and preferences structure. Briefly, it includes three chapters, the first one dealing with the microeconomic problems of increased medical spending and longer life expectancy, in the general framework of the insurance markets, while the last two address the macroeconomic question of what are the main determinants of the international and intertemporal di¤erences in the national saving rates. Is it demographics, government spending, productivity growth or preferences?
Over the years, there has been an increasingly important debate between economists and policymakers on individuals decisions after retirement, in terms of consumption and insurance, over the life-cycle. The first chapter focuses on features regarding consumption, health and health care expenditures related to age, namely incurred after the age of retirement by single individuals, from a microeconomic point of view. The aim is to explore the effects of uninsurable risk of health expenditures as well as the insurable risk of health status on consumption-insurance choice. Following this research line, I developed a model of consumption of goods
and utility of being looked after, taking into consideration the existence of a formal insurance possibility and of an informal insurance arrangement provided by the family, besides out-of-
pocket spending, in the integrated framework of the bequest motive. Using European data (SHARE) on three country groups, Mediterranean, Central European and Scandinavian, I estimated aggregate (representative agent) and disaggregate (for wealth subgroups) models, using a simulated life-cycle approach. More specifically, solving numerically the dynamic model by backward recursion and estimating the interest parameters using the Simulated Method of Moments (SMM), allowed me to simulate each individual's wealth, consumption, formal insurance, medical spending, health and mortality. With the simultaneous consideration of both risks, on
health and medical spending, I found that the model can generate increasing precautionary savings (and consequently bequests) with age after retirement, and therefore fits well the data profiles. Furthermore, I found that the older, and so the sickest, the individuals will become, the more weight they are going to attach to the informal care. Finally, results illustrated that, both at the aggregate and disaggregate level, cohesion coe¢ cient, which represents the strength of family ties, displays an increasing age structure. In addition, estimates showed that individuals that benefit of higher cohesion coefficients are likely to display a certain health status transition in the years after retirement, resulting in a higher life expectancy as measured by the survival probabilities.
Chapter 2 concentrate on the fact that national saving rates differ enormously across developed countries. But these differences obscure a common trend, namely a dramatic decline over time. France and Italy, for example, saved over 17 percent of national income in 1970, but less than 7 percent in 2006. Japan saved 30 percent in 1970, but only 8 percent in 2006. And the U.S. saved 9 percent in 1970, but only 2 percent in 2006. What explains these international and intertemporal differences? Is it demographics, government spending, productivity growth, or preferences? Our answer is preferences. Developed societies are placing increasing
weight on the welfare of those currently alive, particularly contemporaneous older generations. This conclusion emerges from estimating three models in which society makes consumption and labor supply decisions in light of uncertainty over future government spending, productivity, and social preferences. The three models differ in terms of the nature of preference uncertainty and the extent to which current society can control future societies' spending and labor supply
decisions. In the first model, there is only one society considered to rule forever. This society knows its current intertemporal preferences (discount factor) and current intratemporal preferences (age-specific weighting shares in utilities from consumption and leisure). However, it doesn't know the future intertemporal preferences (how its discount factor will evolve). The second model is a time-inconsistency variant of the first. Consequently, we allowed societies to
rule for only one period, rather than put a single society forever in charge. Although today's society knows its future preferences, it controls future societies' consumption and leisure allocation decisions only indirectly via the amount of capital it leaves for the next period. In the third model, society has stable intertemporal preferences, but changing intratemporal preferences (time variant age-specific utility weights). The main results of all three models, based on modeling and estimating the discount factor and the utility weights for U.S., France and Italy, confirm the theory that in time society changed the preference structure towards assigning progressively more weight to the present generations with respect to the future ones (declining
stochastic discount factor). Moreover, it also shows that in time, as far as preferences within the present generations are concerned, society evolved more and more towards a preference structure which assigns higher level of importance to the old generations with respect to the young ones. Indeed, we found the utility weights to follow a bell-shape pattern just for the first half of the existing age groups, while for the second one the curve is more flat, declining at a slower rate than it rose in the first half. In other words, society tends to allocate less importance to the young generations than to the old ones, and this pattern is accentuated in time.
The last chapter is intended to offer an alternative answer to the question raised in Chapter 2, relative to which are the main factors that determine the national saving rate of a country. It does so by estimating a finite-horizon overlapping generation model of consumption choice for the U.S., where in each period of time, government and households decide together what is to be consumed and saved. The novelty consists in modelling societies preference for young, old and unborn generations separately. Another new feature consists in considering a four stochastic dimension model, where besides uncorrelated technology and government spending
shock, I included positively correlated societies preferences for young and for old generations. To this purpose, I estimated a set of parameters consistent with the structure of the modelled economy, evaluating their measurements based on demographics and preferences. It is registered that when an age-specific utility weights structure and stochastic society' preferences towards young and old generations are introduced, the model achieve a good empirical performance. In this respect, results clearly confrm the main idea of Chapter 2 that, in time, society tended progressively attributed more importance to the old generations with respect to the young or future ones and accentuated this tendency over the years. In order to extend this study, further
research can be done by replicating the analysis for France and Italy.
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