Does Life Expectancy Affect Wealth Accumulation? Evidence from Genetic Testing

Abstract

Life expectancy plays a key role in economic models of wealth accumulation, with important implications for economic growth. Empirically, the effects of life expectancy are hard to identify, since a lower life expectancy is typically correlated with bad current health. I overcome this challenge by exploiting genetic testing as an information shock to life expectancy. My sample consists of working-age adults who start their life with a 50% probability of having inherited a gene mutation causing Lynch syndrome (LS), a hereditary cancer syndrome. They undergo genetic testing to learn their mutation carrier status while they are still healthy. Conditional on the ex-ante probability of carrying the LS gene mutation, the result of genetic testing is independent of potential outcomes. To identify the causal effects of life expectancy, I estimate the differences in outcomes following genetic testing between people who test positive (mutation carriers) and those who test negative (non-carriers) using detailed administrative data. I find that life expectancy has a positive effect on financial wealth accumulation among working-age adults, in large part due to a positive effect on labor supply and household income. Other less-liquid wealth elements such as housing wealth are unaffected. Using a baseline of untested individuals, I also find that increases and decreases in life expectancy lead to opposite-signed effects on financial wealth accumulation.

Keywords: Household saving, household finance, life expectancy, labor supply, health, genetics

JEL Classification: D14, G51, E21, I10, J22