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SPP 454

Author: Richard Rose
Description: Retired people not only require an income to replace earnings but also health care to deal with problems of ageing. Whereas the value of a pension tends to be stable, the need for health care tends to increase with age. This paper introduces an equilibrium model showing how the two differ in their roles of providing security for older people. It uses survey data from the 21-country Life in Transition survey covering the population of Central and Eastern Europe and the former Soviet Union, societies that have been transformed during the lifetimes of older people. Statistical analysis shows that both economic capital and human capital have a major impact on health, but that pensions are not a primary influence. Instead, the process of ageing exerts continuing for more health care. Thus, older people give greater priority to increased public expenditure on health care rather than pensions. Because health care insures people of all ages against the risk of ill health, more public spending on health care is the first priority of younger and middle-age Europeans too.

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