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Impact of Health Insurance on Consumption and Saving Behaviours: Evidence from Rural China

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  • Cheung, Diana
  • Padieu, Ysaline
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    Abstract

    By reducing risk on income, health insurance may reduce household precautionary behaviours and boost consumption. This paper evaluates the impact of a subsidized public health insurance scheme designed for rural residents, the New Cooperative Medical Scheme (NCMS), on consumption and saving behaviours in rural China. To do so, we use socioeconomic and demographic data from the China Health and Nutrition Survey and implement OLS, IV and Propensity Score Matching. We find that NCMS helps lowering household savings by enhancing total consumption expenditures, in particular food consumption and bride expenses with OLS and IV estimations. However, when we implement a propensity score matching coupled with a difference-in-difference approach to control for time-invariant unobservables, these results no longer hold. Thus, the scheme does not have a disincentive effect on savings nor an incentive effect on consumption, suggesting that the implementation of the insurance is too recent in 2006 to be trusted by rural Chinese households, to reduce income risk and enable them to lower their precautionary savings. --

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    Bibliographic Info

    Paper provided by Verein für Socialpolitik, Research Committee Development Economics in its series Proceedings of the German Development Economics Conference, Berlin 2011 with number 18.

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    Date of creation: 2011
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    Handle: RePEc:zbw:gdec11:18

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    Keywords: Rural China; New Cooperative Medical Scheme; Saving; Consumption Propensity Score Matching; Difference-in-Difference;

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    14. Heckman, James J & Ichimura, Hidehiko & Todd, Petra E, 1997. "Matching as an Econometric Evaluation Estimator: Evidence from Evaluating a Job Training Programme," Review of Economic Studies, Wiley Blackwell, vol. 64(4), pages 605-54, October.
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