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Health Shocks and Consumption Smoothing: Evidence from Indonesia

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  • Maria Eugenia Genoni

Abstract

Episodes of uninsured illness can seriously compromise a household's well-being. This article provides further evidence on the consequences of illness episodes on earnings and consumption in Indonesia. We exploit a rich panel data set that allows us to combine fixed effects and instrumental variables to address biases associated with the endogeneity of illness. Using deteriorations in physical functioning to measure illness for a sample of prime-age individuals, we find that earnings are significantly reduced. However, the effects on consumption are relatively small and statistically insignificant. In addition, we explore informal mechanisms that households may be using to smooth out the consequences of these episodes. In particular, we study whether households deplete liquid assets or receive transfers from noncoresident kin. Transfers are responsive to illness, but there is no evidence of asset depletions. Overall, our findings suggest some ability to smooth the income effects of illness on average. Nonetheless, our analysis is subject to some important caveats that highlight the difficulties of identifying these effects and the need for more careful research on this relevant question.

Suggested Citation

  • Maria Eugenia Genoni, 2012. "Health Shocks and Consumption Smoothing: Evidence from Indonesia," Economic Development and Cultural Change, University of Chicago Press, vol. 60(3), pages 475-506.
  • Handle: RePEc:ucp:ecdecc:doi:10.1086/664019
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    Cited by:

    1. Flores, Gabriela & O’Donnell, Owen, 2016. "Catastrophic medical expenditure risk," Journal of Health Economics, Elsevier, vol. 46(C), pages 1-15.
    2. Virginie Comblon & Karine Marazyan, 2017. "Labor Supply Responses to Chronic Illness in Senegal," Working Papers 20170006, Université Paris 1 Panthéon Sorbonne, UMR Développement et Sociétés.
    3. Khan, Farid & Bedi, Arjun S. & Sparrow, Robert, 2015. "Sickness and Death: Economic Consequences and Coping Strategies of the Urban Poor in Bangladesh," World Development, Elsevier, vol. 72(C), pages 255-266.
    4. LaFave, Daniel & Thomas, Duncan, 2017. "Extended families and child well-being," Journal of Development Economics, Elsevier, vol. 126(C), pages 52-65.
    5. repec:eee:wdevel:v:107:y:2018:i:c:p:54-74 is not listed on IDEAS
    6. Alam, Shamma Adeeb, 2015. "Parental health shocks, child labor and educational outcomes: Evidence from Tanzania," Journal of Health Economics, Elsevier, vol. 44(C), pages 161-175.
    7. Sven Neelsen & Supon Limwattananon & Owen O'Donnell & Eddy van Doorslaer, 2015. "Economic Impact of Illness with Health Insurance but without Income Insurance," Tinbergen Institute Discussion Papers 15-060/V, Tinbergen Institute.
    8. repec:eee:wdevel:v:104:y:2018:i:c:p:297-309 is not listed on IDEAS
    9. repec:eee:jhecon:v:53:y:2017:i:c:p:38-52 is not listed on IDEAS
    10. William Jack & Tavneet Suri, 2014. "Risk Sharing and Transactions Costs: Evidence from Kenya's Mobile Money Revolution," American Economic Review, American Economic Association, vol. 104(1), pages 183-223, January.
    11. Limwattananon, Supon & Neelsen, Sven & O'Donnell, Owen & Prakongsai, Phusit & Tangcharoensathien, Viroj & van Doorslaer, Eddy & Vongmongkol, Vuthiphan, 2015. "Universal coverage with supply-side reform: The impact on medical expenditure risk and utilization in Thailand," Journal of Public Economics, Elsevier, vol. 121(C), pages 79-94.

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