Macroeconomic Effects of Healthcare Financing in Colombia

Abstract

Real healthcare expenditure in Colombia is projected to rise 49% over the next eight years due to population aging, rising costs, and domestic policies, adding significant pressure to public finances. Using a dynamic general equilibrium model with heterogeneous households, we analyze the macroeconomic impact of financing higher healthcare expenditure through different taxes in a context of high informality. While consumption taxes are the best option in terms of output, financing with taxes on high-skilled labor improves income distribution with similar effects on production. Population aging adds pressure on aggregate dynamics by reducing labor supply, savings, and capital accumulation.