Health, Taxes, and Growth

Liutang Gong

Hongyi Li

Dihai Wang


Heng-fu Zou

This paper studies capital accumulation and consumption in the traditional
Ramsey model under an exogenous growth framework. The model has three important features: (1) treating health as a simple function of consumption, which enable the study of health and growth in an aggregate macroeconomic model; (2) the existence of multiple equilibria of capital stock, health, and consumption, which is more consistent with the real world situation - rich countries may end up with high capital, better health, and higher consumption than poor countries; (3) the fundamental proposition of a consumption tax instead of capital taxation from the traditional growth model does not hold anymore in our model. As long as consumption goods contribute to health formation, the issue of a consumption tax versus an income (or capital) tax should be re-examined.

Key Words: Health; Capital accumulation; Taxation.
JEL Classification Numbers: H0, I1, O3, O4.