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The same group of senior economists argue that we can save Medicare by improving public health, in particular reduce smoking and obesity

Economics Dec 03, 2020

The same group of senior economists argue that we can save Medicare by improving public health, in particular reduce smoking and obesity. Try to convince them that this can backfire in terms of fiscal balance.

Expert Solution

It is true that Medicare can be saved by improving public health. It can be done by reducing smoking and obesity. It means that if we reduce smoking then the expenses on Medicare can be saved. It can also be done by reducing obesity. Increase in smoking and obesity can increase the expenses of Medicare. But it will affect the fiscal balance. Fiscal balance is the amount that a government receives by tax revenues - government spending. If smoking and obesity has been reduced then the tax revenues from cigarette making companies and other obesity causing foods making companies will decrease because when the smoking and obesity will decrease then the income of these companies will also decrease and tax revenue will also be decreased. So it can result in making negative fiscal balance which means a fiscal deficit means that the government revenue is less than the government spending. It will reduce the growth of the economy.

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