Health, Welfare and Inequality
33 Pages Posted: 30 Nov 2006
Date Written: October 2006
This paper uses data from the Health and Retirement Study (HRS) to study the relationship between health status and economic welfare at household level. We develop a model to estimate the welfare cost of ill health by exploiting the methodology of the equivalence scales. The crucial variables in this approach are, besides the health status (measured in several dimensions), the economic decisions of the household which can be directly related to health conditions, such as health-related expenses. By estimating a demand system we derive healthequivalence scales to learn about the cost of health conditions on economic welfare, controlling for other covariates. Our estimates suggest that - when taking account of health - the welfare of households in poor health drops substantially and inequality increases. There are important social welfare costs associated with differences in the health status of the elderly in the USA.
Keywords: welfare cost, health, inequality
JEL Classification: I12, I31, J14
Suggested Citation: Suggested Citation