Should I wait or should I pay? The dynamics of private and public healthcare

In many countries, a private health system coexists with the public one. However, the latter is increasingly subject to budgetary cuts and no longer able to meet healthcare demand. Within an OLG model in which young agents, beside in capital, invest also in health, we show that access to the public health system is rationed by increasing waiting times, entailing costs in terms of treatment effectiveness and psychological order. Considering a fiscal policy aimed at providing health services and stabilizing public debt-to-GDP, we obtain two equilibrium regimes, the first one emerging for low GDP levels, the other for larger ones. By performing a global analysis, we find a lower globally unstable stationary solution and a higher globally stable one, and waiting times to be counter-cyclical along the transitional path. We also characterize the set of optimal allocations and prove that GDP is increasing in the social discount factor. Finally, we show how to decentralize any optimal allocation by fixing opportunely the debt-to-capital ratio and public healthcare provision.