This paper develops a framework to study the economic impact of infectious diseases by
integrating epidemiological dynamics into a continuous time neo-classical growth model. There is a two
way interaction between the economy and the disease: the incidence of the disease a®ects labor supply and
investment in health capital can a®ect the incidence and recuperation from the disease. Thus, both the
disease incidence and the income levels are endogenous. It is a general framework to study the e®ect and
control of infectious diseases where there is an interaction with physical capital and health expenditures.
The dynamics of the disease make the control problem non-convex and thus, a new existence theorem is
given. We fully characterize the local dynamics of the model. There can be multiple steady states, and
as the underlying parameters change there can be bifurcations. There can also be steady states where
the disease is endemic but the optimal response is not to spend any resources on controlling it. We also
see how the endogenous variables change as some underlying economic parameters are varied.