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Consumption and Health

Author

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  • Domeij David

    () (Stockholm School of Economics)

  • Johannesson Magnus

    () (Stockholm School of Economics)

Abstract

Many studies show that individuals do not perfectly smooth consumption at older ages. We argue that an important explanation is that health status declines with age, making consumption at older ages less desirable. We incorporate health status into a standard incomplete markets life-cycle model, by allowing the marginal utility of consumption to increase with health status. Life-cycle income, mortality risk and health status are exogenous in the model and calibrated on Swedish data. Life-cycle consumption is endogenous and matches well Swedish Consumer Expenditure Survey data; consumption expenditure increase with age until about 60 years, and then falls with about 25% to 80 years. An alternative model with mortality risk, but without health status, fails in capturing the fall in consumption with age seen in the data.

Suggested Citation

  • Domeij David & Johannesson Magnus, 2006. "Consumption and Health," The B.E. Journal of Macroeconomics, De Gruyter, vol. 6(1), pages 1-30, May.
  • Handle: RePEc:bpj:bejmac:v:contributions.6:y:2006:i:1:n:6
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    References listed on IDEAS

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    Cited by:

    1. Potrafke, Niklas, 2010. "The growth of public health expenditures in OECD countries: Do government ideology and electoral motives matter?," Journal of Health Economics, Elsevier, vol. 29(6), pages 797-810, December.
    2. repec:spr:joecth:v:64:y:2017:i:2:d:10.1007_s00199-016-0984-1 is not listed on IDEAS
    3. Karsten Jeske & Sagiri Kitao, 2005. "Health insurance and tax policy," FRB Atlanta Working Paper 2005-14, Federal Reserve Bank of Atlanta.
    4. David Crainich & Louis Eeckhoudt & James Hammitt, 2015. "The value of risk reduction: new tools for an old problem," Theory and Decision, Springer, vol. 79(3), pages 403-413, November.
    5. James Hammitt, 2013. "Admissible utility functions for health, longevity, and wealth: integrating monetary and life-year measures," Journal of Risk and Uncertainty, Springer, vol. 47(3), pages 311-325, December.
    6. Holger Kraft & Claus Munk & Frank Thomas Seifried & Sebastian Wagner, 2017. "Consumption habits and humps," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(2), pages 305-330, August.
    7. Attema, Arthur & Krol, Marieke & van Exel, Job & Brouwer, Werner, 2014. "New findings from the TTO for income approach to elicit willingness to pay for a QALY," MPRA Paper 61197, University Library of Munich, Germany.
    8. Feigenbaum, James, 2008. "Information shocks and precautionary saving," Journal of Economic Dynamics and Control, Elsevier, vol. 32(12), pages 3917-3938, December.
    9. Luca Gori & Mauro Sodini, 2011. "Nonlinear Dynamics in an OLG Growth Model with Young and Old Age Labour Supply: The Role of Public Health Expenditure," Computational Economics, Springer;Society for Computational Economics, vol. 38(3), pages 261-275, October.
    10. Nathalie Mathieu-Bolh & Xavier Pautrel, 2014. "Environmental taxation, health and the life-cycle," Working Papers hal-00930936, HAL.
    11. Mathieu-Bolh, Nathalie & Pautrel, Xavier, 2016. "Reassessing the effects of environmental taxation when pollution affects health over the life-cycle," Economic Modelling, Elsevier, vol. 52(PB), pages 310-321.
    12. Shantanu Bagchi & James Feigenbaum, 2014. "Is Smoking a Fiscal Good?," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 17(1), pages 170-190, January.
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