Life expectancy and economic growth

• In an OLG model with family altruism we study the life expectancy–growth relationship.
• With operative bequests, the growth effect is unambiguously negative.
• With inoperative bequests, there exists an inverted-U shape relationship.
• Policy induced changes in income tax rates positively affect economic growth.

This paper investigates the relationship between life expectancy and economic growth in an overlapping generations model with family altruism where private and public investments in human capital of children are the engine of endogenous growth. Consistent with recent empirical evidence, our model provides a theoretical case of a non-linear pattern between life expectancy and economic growth. However, it is also shown that the emergence of such a pattern critically depends on the existence of intergenerational transfers in form of bequests. Specifically, we find that rising life expectancy unambiguously decreases growth if bequests are operative, whereas there exists an inverted-U shape relationship in economies where bequests are inoperative.