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Substituting Leisure for Health Expenditure: A General Equilibrium-Based Empirical Investigation (No.E2013005)


Hui He+ Kevin X.D. Huang++ Sheng-Ti Hung*
December 13, 2013

Abstract: We develop a general equilibrium macroeconomic model with endogenous health accumulation, and we use the model's equilibrium condition to estimate the elasticity of substitution between medical care and leisure time in maintaining health, based on a cross-country panel dataset. Our econometric estimates imply that increasing health-enhancing leisure time may substantially reduce the nation's medical expenditure and help resolve its pressing fiscal uncertainty. Our study highlights the importance of several current nationwide campaigns aimed at improving national health status, from not only health but macroeconomic perspectives. Our study also provides a guidance to a growing macro-health literature in modelling health production.

Keywords: general equilibrium, macro-health, health care, leisure time, elasticity of substitution, fiscal uncertainty

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+ School of Economics, Shanghai University of Finance and Economics, 777 Guoding Road, Shanghai, China, 200433. E-mail:
++ Department of Economics, Vanderbilt University, 2301 Vanderbilt Place, Nashville, TN 37235, U.S.A. Tel.: +1 615 936 7271; fax: +1 615 343 8495; e-mail:
* Department of Economics, University of Hawai'i at Manoa, 2424 Maile Way, Saunders Hall Room 542, Honolulu, HI 96822, U.S.A. E-mail: