Tax Financed Government Health Expenditure and Growth with Capital Deepening Externality

This paper develops a two-sector endogenous growth model with health capital and examines the impact tax financed health expenditure has on long-run growth. In this model, health capital is accumulated through government spending as a flow channel and a capital deepening externality as a stock channel. When arguing about the problem of growth maximizing flat tax, the latter channel plays a significant role for determining tax rate.