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The relative income hypothesis: does it exist over time? Evidence from the BHPS

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  • Joanne Kathryn Lindley

    ()
    (Department of Economics, The University of Sheffield)

  • Paula Lorgelly

Abstract

The relative income hypothesis suggests that income inequality has a detrimental affect on people´s health. This previously well accepted relationship has recently come under scrutiny. Some claim it is a statistical artefact, while others argue that aggregate level data are not sophisticated enough to adequately test for its existence. This paper adds to the debate by estimating the relationship between income inequality and health using panel data. A random effects ordered probit is used to estimate the relationship between net household income, regional income inequality and self-reported health, for 3736 individuals over 9 years, while controlling for individual socioeconomic characteristics like gender, social class and age. Significant differences in income inequality across regions and considerable changes in health are found across years, however, the panel data estimating regressions find no significant association between any of the measures of income inequality and self-reported health. Therefore, it would appear that the relative income hypothesis does not exist over time and does not exist within Britain.

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Bibliographic Info

Paper provided by The University of Sheffield, Department of Economics in its series Working Papers with number 2005013.

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Length: 32 pages
Date of creation: Jun 2005
Date of revision: Jun 2005
Handle: RePEc:shf:wpaper:2005013

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Keywords: Self rated health; income inequalities; random effects ordered probit; BHPS;

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  1. Jennifer M. Mellor & Jeffrey D. Milyo, 2001. "Income inequality and health," Journal of Policy Analysis and Management, John Wiley & Sons, Ltd., vol. 20(1), pages 151-155.
  2. Angus Deaton, 2002. "Health, inequality, and economic development," Working Papers 209, Princeton University, Woodrow Wilson School of Public and International Affairs, Research Program in Development Studies..
  3. Dean R. Lillard & Richard V. Burkhauser, 2005. "Income Inequality and Health: A Cross-Country Analysis," Schmollers Jahrbuch : Journal of Applied Social Science Studies / Zeitschrift für Wirtschafts- und Sozialwissenschaften, Duncker & Humblot, Berlin, Duncker & Humblot, Berlin, vol. 125(1), pages 109-118.
  4. Angus Deaton, 1999. "Inequalities in income and inequalities in health," Working Papers 280, Princeton University, Woodrow Wilson School of Public and International Affairs, Center for Health and Wellbeing..
  5. Jennifer M. Mellor & Jeffrey Milyo, 1999. "Re-Examining the Evidence of an Ecological Association between Income Inequality and Health," Discussion Papers Series, Department of Economics, Tufts University, Department of Economics, Tufts University 9922, Department of Economics, Tufts University.
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  7. Stephen P. Jenkins, 1999. "Analysis of income distributions," Stata Technical Bulletin, StataCorp LP, StataCorp LP, vol. 8(48).
  8. Butler, J S & Moffitt, Robert, 1982. "A Computationally Efficient Quadrature Procedure for the One-Factor Multinomial Probit Model," Econometrica, Econometric Society, Econometric Society, vol. 50(3), pages 761-64, May.
  9. Guillaume R. Frechette, 2001. "Random-effects ordered probit," Stata Technical Bulletin, StataCorp LP, StataCorp LP, vol. 10(59).
  10. Jennifer M. Mellor & Jeffrey Milyo, 2002. "Income Inequality and Health Status in the United States: Evidence from the Current Population Survey," Journal of Human Resources, University of Wisconsin Press, vol. 37(3), pages 510-539.
  11. Cowell, Frank A & Victoria-Feser, Maria-Pia, 1996. "Robustness Properties of Inequality Measures," Econometrica, Econometric Society, Econometric Society, vol. 64(1), pages 77-101, January.
  12. Wildman, John, 2003. "Income related inequalities in mental health in Great Britain: analysing the causes of health inequality over time," Journal of Health Economics, Elsevier, Elsevier, vol. 22(2), pages 295-312, March.
  13. Ellison, George T. H., 2002. "Letting the Gini out of the bottle? Challenges facing the relative income hypothesis," Social Science & Medicine, Elsevier, Elsevier, vol. 54(4), pages 561-576, February.
  14. Laporte, Audrey, 2002. "A note on the use of a single inequality index in testing the effect of income distribution on mortality," Social Science & Medicine, Elsevier, Elsevier, vol. 55(9), pages 1561-1570, November.
  15. Soobader, Mah-Jabeen & LeClere, Felicia B., 1999. "Aggregation and the measurement of income inequality: effects on morbidity," Social Science & Medicine, Elsevier, Elsevier, vol. 48(6), pages 733-744, March.
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Cited by:
  1. Andrew M. Jones & Stefanie Schurer, 2007. "How Does Heterogeneity Shape the Socioeconomic Gradient in Health Satisfaction?," Ruhr Economic Papers, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen 0008, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.
  2. Cristina Hernández-Quevedo & Andrew M Jones & Nigel Rice, 2005. "Reporting bias and heterogeneity in selfassessed health. Evidence from the British Household Panel Survey," Health, Econometrics and Data Group (HEDG) Working Papers, HEDG, c/o Department of Economics, University of York 05/04, HEDG, c/o Department of Economics, University of York.

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