Health spending, education and endogenous demographics in an OLG model

We present a model of endogenous aging with public expenditure on health and pensions financed by an income tax. We show that government policies on health and pensions might lift an economy from a low to a high income steady state. In particular, the impact of an increase in the income tax is non monotonic and depends on the initial levels of income and longevity: it is positive at low levels, and negative at high levels. On the other hand, a change in the allocation of public spending from social security benefits to health expenditures, without varying the tax rate, always increases income, even though pension benefits might decrease, and the problem of population aging could worsen.