Impacts of Transfers for the Concentration Index: Explaining the Health Equality Paradox?

Abstract

Empirical studies often report that social inequalities in health are larger in Nordic welfare states than in less egalitarian societies. This is called the health equality paradox, and may actually follow from some properties of bivariate measures such as the concentration index. In this paper, we show why some income transfers increase measured health inequality. While unconditional income transfers will reduce the concentration index, income transfers from a rich to a poor, both with equal health, will increase the concentration index. We then argue that such health contingent income transfers are as relevant as the non-continent ones, and that both kinds of transfers can occur for any direction of the causality between income and health. In the models we study, policies that reduce the impact of family background on income, induce health contingent income transfers. This seems like a plausible mechanism for the recent empirical finding that the concentration index is positively correlated with public expenditures on education.

Keywords: socioeconomic inequality, health inequality, welfare states, health transfers, income transfers, concentration index

JEL Classification: D31, I12