Explaining the Decline of the U.S. Saving Rate: The Role of Health Expenditure

37 Pages Posted: 22 May 2020

See all articles by Yi Chen

Yi Chen

ShanghaiTech University - School of Entrepreneurship and Management

Maurizio Mazzocco

University of California, Los Angeles (UCLA)

Béla Személy

Boston University - Questrom School of Business; Office of the Comptroller of the Currency

Date Written: November 2019

Abstract

The U.S. saving rate declined by 8% between 1980 and 2009. We document that the decline can be explained by rising health expenditures. Using exogenous variation in medical expenses generated by Food and Drug Administration drug approvals, we document that a 1 percentage point increase in health expenditure generated a decline in saving rate of 0.9 percentage points. We then estimate a model of household decisions to evaluate the mechanisms behind the decline. We find that the rise in health expenses and drop in saving rate are driven by progress in health technology, reduction in copayment rates, and improvements in income processes.

Suggested Citation

Chen, Yi and Mazzocco, Maurizio and Személy, Béla and Személy, Béla, Explaining the Decline of the U.S. Saving Rate: The Role of Health Expenditure (November 2019). International Economic Review, Vol. 60, Issue 4, pp. 1823-1859, 2019, Available at SSRN: https://ssrn.com/abstract=3602103 or http://dx.doi.org/10.1111/iere.12405

Yi Chen (Contact Author)

ShanghaiTech University - School of Entrepreneurship and Management ( email )

100 Haike Rd
Pudong Xinqu, Shanghai
China

Maurizio Mazzocco

University of California, Los Angeles (UCLA) ( email )

405 Hilgard Avenue
Box 951361
Los Angeles, CA 90095
United States

Béla Személy

Office of the Comptroller of the Currency ( email )

400 7th Street SW
Washington, DC 20219
United States

Boston University - Questrom School of Business ( email )

595 Commonwealth Avenue
Boston, MA MA 02215
United States

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