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Income and the Use of Prescription Drugs by the Elderly: Evidence from the Notch Cohorts

  • John R. Moran
  • JKosali Ilayperuma Simon
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    We use exogenous variation in Social Security payments created by the Social Security benefits notch to estimate how retirees’ use of prescription medications responds to changes in their incomes. Using data from the 1993 Wave of the AHEAD, we obtain instrumental variables estimates of the income elasticity of prescription drug use that are uniformly above one, with a middle estimate of 1.32. Simulations based on our estimates suggest that reductions in Social Security benefits similar to those incorporated in recent reform proposals would significantly reduce prescription drug use among the elderly.

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    File URL: http://jhr.uwpress.org/cgi/reprint/XLI/2/411
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    Article provided by University of Wisconsin Press in its journal Journal of Human Resources.

    Volume (Year): 41 (2006)
    Issue (Month): 2 ()
    Pages:

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    Handle: RePEc:uwp:jhriss:v:41:y:2006:i:2:p411-432
    Contact details of provider: Web page: http://jhr.uwpress.org/

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    1. Biggs, Andrew G. & Brown, Jeffrey R. & Springstead, Glenn, 2005. "Alternative Methods of Price Indexing Social Security: Implications for Benefits and System Financing," National Tax Journal, National Tax Association, vol. 58(3), pages 483-504, September.
    2. John Mullahy, 1997. "Instrumental-Variable Estimation Of Count Data Models: Applications To Models Of Cigarette Smoking Behavior," The Review of Economics and Statistics, MIT Press, vol. 79(4), pages 586-593, November.
    3. Gary V. Engelhardt & Jonathan Gruber & Cynthia D. Perry, 2005. "Social Security and Elderly Living Arrangements: Evidence from the Social Security Notch," Journal of Human Resources, University of Wisconsin Press, vol. 40(2).
    4. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
    5. Zhou Yang & Donna B. Gilleskie & Edward C. Norton, 2004. "Prescription Drugs, Medical Care, and Health Outcomes: A Model of Elderly Health Dynamics," NBER Working Papers 10964, National Bureau of Economic Research, Inc.
    6. Smith, Richard J & Blundell, Richard W, 1986. "An Exogeneity Test for a Simultaneous Equation Tobit Model with an Application to Labor Supply," Econometrica, Econometric Society, vol. 54(3), pages 679-85, May.
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