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Household Portfolio Choices, Health status and Health Care Systems A Cross-Country Analysis Based on SHARE

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Abstract

Health risk is increasingly viewed as an important form of background risk that affects household portfolio decisions. However, its role might be mediated by the presence of a protective full-coverage National Health System that could reduce households’ probability of incurring current and future out-of-pocket medical expenditures. In this paper, we first sketch a theoretical framework in which household portfolio decisions are a function of both individual and systemic characteristics. Then, we test its main implications based on SHARE data, studying the influence of current health status and future health risk on the decision to hold risky assets, across 10 European countries with different health care systems, each offering a different degree of protection against out-of-pocket medical expenditures. We find robust empirical confirmation of our model implications, since perceived health condition matters more than objective health condition and, consistent with the theoretical underpinnings of background risk, health risk affects portfolio choices only in countries with less protective healthcare systems. Furthermore, portfolio decisions consistent with background risk models are observed only with respect to middle-aged and highlyeducated investors.

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Paper provided by Tor Vergata University, CEIS in its series CEIS Research Paper with number 183.

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Length: 37 pages
Date of creation: 21 Jan 2011
Date of revision: 21 Jan 2011
Handle: RePEc:rtv:ceisrp:183

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Postal: CEIS - Centre for Economic and International Studies - Faculty of Economics - University of Rome "Tor Vergata" - Via Columbia, 2 00133 Roma
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Keywords: Household portfolios; health status; national health care systems;

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