Browsing by Person "Tscheuschner, Paul"

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Endogenous life expectancy and R&D-based economic growth
(2021) Tscheuschner, Paul
We propose an overlapping generations framework in which life expectancyis determined endogenously by governmental health investments. As a nov-elty, we are able to examine the feedback effects between life expectancy andR&D-driven economic growth for the transitional dynamics. We find that i)higher survival induces economic growth through higher savings and higherlabor force participation; ii) longevity-induced reductions in fertility hampereconomic development; iii) the positive life expectancy effects of larger savingsand higher labor force participation outweigh the negative effect of a reductionin fertility, and iv) there exists a growth-maximizing size of the health caresector that might lie beyond what is observed in most countries. Altogether,the results support a rather optimistic view on the relationship between lifeexpectancy and economic growth and contribute to the debate surroundingrising health shares and economic development.
Essays on demographic change and R&D-based economic growth
(2020) Tscheuschner, Paul; Prettner, Klaus
This dissertation analyzes the economic growth effects of demographic change embedded in a framework of endogenous R&D. Substantial changes in fertility and longevity are the two main demographic features that all industrialized countries have experienced during the twentieth century and are still experiencing until today. Although the individual gains of higher life expectancy and better education, initiated by a quantity-quality tradeoff, are huge, there exist concerns about the macroeconomic effects. To improve the understanding about the aforementioned relationships, this work extends the existing literature on the growth effects of population aging by 1) introducing exogenous longevity into a growth framework with vertical innovations; 2) by endogenizing life expectancy in a growth framework with horizontal innovations; and 3) by examining the growth effects of basic scientific knowledge over the very long run. Chapter two contains the first paper titled “Longevity-induced Vertical Innovation and the Tradeoff Between Life and Growth”, which is joint work with Annarita Baldanzi and Klaus Prettner. In this paper, the positive effect of a longer retirement period on individual savings is utilized. A higher exogenous probability to survive to old age raises savings, placing a downward pressure on the market interest rate. On the production side, a lower interest rate increases the present value of holding a patent, which, in turn, makes R&D more profitable. As a result, R&D employment increases, leading to a higher frequency of quality improving ideas and, with it, faster economic growth. It is shown that the relationship between life expectancy and economic growth is strictly positive. In a welfare analysis, the utility gains of living longer are disentangled from the longevity-induced utility gains of higher consumption. The analysis concludes that the direct welfare gains of higher life expectancy, usually, outweigh the indirect welfare gains of faster economic growth. Chapter three contains a single-authored paper and is titled “Endogenous Life Expectancy and R&D-based Economic Growth”. As the title suggests, life expectancy is endogenized and increases in the public resources devoted toward health. Again, the longevity-saving-channel is present. Additionally, a quantity-quality tradeoff is introduced, such that parents have to decide on the number of children to have and on the childrens level of education. Besides the positive saving effect, life expectancy impacts positively on the labor force participation rate and negatively on the fertility rate. The reason is that adults need to work more (at the expense of having fewer children), to compensate for a prolonged retirement period. The feedback effects with production, characterized by horizontal innovation, are then analyzed in a calibrated version of the model. Using U.S. data, the model suggests that the overall effect of life expectancy on economic growth is positive and amounts to 11.9 % of the increases in the real GDP p.c. over the period 1960-2017. From a welfare perspective, the results indicate that the growth-maximizing size of the health care sector might lie beyond what is observed in most industrialized countries, nowadays. The finding that the size of the health care sector that maximizes life expectancy is substantially larger than the growth-maximizing size supports the view to not only consider the growth effects of health care. Chapter four contains the third paper which is co-authored with Klaus Prettner and is titled “The Scientific Revolution and Its Role in the Transition to Sustained Economic Growth”. Basic scientific knowledge is introduced as a necessary input in applied R&D and increases in the number of tinkerers in the economy and in their education. For low levels of development, fertility is high and educational investments are zero. Once income surpasses a certain threshold, education turns positive. Together with the consequent fertility transition, this marks the takeoff to sustained economic growth. It is shown that the growth rate of as well as the access to basic scientific knowledge is crucial in determining the timing and the magnitude of the takeoff. For low growth rates and low access, the takeoff is delayed by up to one generation because applied R&D takes longer to become profitable. In the extreme case of zero basic scientific knowledge, no takeoff might occur at all. The results improve the understanding of economic growth processes over the very long run and provide one possible explanation why some regions experienced the takeoff to sustained economic growth earlier than others.
Longevity-induced vertical innovation and the tradeoff between life and growth
(2017) Baldanzi, Annarita; Prettner, Klaus; Tscheuschner, Paul
We analyze the economic growth effects of rising longevity in a framework of endogenous growth driven by quality-improving innovations. We show that a rise in longevity raises savings and thereby reduces the market interest rate. Since the monopoly profits generated by a successful innovation are discounted by the endogenous market interest rate, this raises the net present value of innovations, which, in turn, fosters R&D. The associated increase in the employment of scientists leads to faster technological progress and a higher long-run economic growth rate. From a welfare perspective, we show that the direct effect of an increase in life expectancy on lifetime utility is much larger than the indirect effect of the induced higher consumption due to faster economic growth. Consequently, the debate on rising health care expenditures should not predominantly be based on the growth effects of health care.
The scientific revolution and its role in the transition to sustained economic growth
(2020) Tscheuschner, Paul; Lehmann-Hasemeyer, Sibylle; Prettner, Klaus
We propose a Unified Growth model that analyzes the role of the Scientific Revolution in the takeoff to sustained modern economic growth. Basic scientific knowledge is a necessary input in the production of applied knowledge, which, in turn, fuels productivity growth and leads to rising incomes. Eventually, rising incomes instigate a fertility transition and a takeoff of educational investments and human capital accumulation. In regions where scientific inquiry is severely constrained (for religious reasons or because of oppressive rulers), the takeoff to modern growth is delayed or might not occur at all. The novel mechanism that we propose for the latent transition towards the takeoff could contribute to our understanding of why sustained growth emerged first in Europe.