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Estimating The Causal Effect of Income on Health: Evidence from Post Reunification East Germany

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  • Paul Frijters
  • John P. Haisken-DeNew
  • Michael Shields

Abstract

In this paper we investigate if there was a causal effect of changes in current and 'permanent' income on the health of East Germans in the years following reunification. Reunification was completely unanticipated and therefore can be seen as a providing some exogenous variation, which resulted in a substantial increase in average household incomes for East Germans. Our data source is the German Socio-Economic Panel (GSOEP) between 1991 and 1999, and we fit both random and fixed-effects estimators to our ordinal health measures. Whilst the exogeneity of reunification allows us to establish the causality between income and health, the fixed-effects methodology additionally enables us to control for individual unobservable heterogeneity such as parental background and general attitudes to health. We also provide new evidence on how major life-events impact on health, and we pay close attention to the issue of panel attrition, given that there might be endogenous exits from the panel if the unhealthy are more likely to drop out of the sample. Using cross-sectional variations in income and health we find evidence of a significant positive effect of current income on health. However, after controlling for heterogeneity and using a new decomposition of the fixed-effects estimates, we find no evidence that increased income leads to improved health. This is the case with respect to current income and a measure of 'permanent' income and two alternative definitions of health. We also find no evidence of an effect of regional income on health.

Suggested Citation

  • Paul Frijters & John P. Haisken-DeNew & Michael Shields, 2003. "Estimating The Causal Effect of Income on Health: Evidence from Post Reunification East Germany," CEPR Discussion Papers 465, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  • Handle: RePEc:auu:dpaper:465
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    File URL: https://www.cbe.anu.edu.au/researchpapers/cepr/DP465.pdf
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. David Cantarero & Marta Pascual, 2005. "Socio-Economic Status And Health: Evidence From The Echp," Economics Bulletin, AccessEcon, vol. 9(9), pages 1-17.
    2. Maite Blázquez Cuesta & Elena Cottini & Herrarte, A. (Ainhoa), 2012. "GINI DP 39: Socioeconomic Gradient in Health: How Important is Material Deprivation?," GINI Discussion Papers 39, AIAS, Amsterdam Institute for Advanced Labour Studies.
    3. Doyle, Orla & Harmon, Colm P. & Walker, Ian, 2005. "The Impact of Parental Income and Education on the Health of their Children," IZA Discussion Papers 1832, Institute for the Study of Labor (IZA).
    4. Orla Doyle & Colm Harmon & Ian Walker, 2007. "The Impact of Parental Income and Education on Child Health. Further Evidence for England," Working Papers 200706, Geary Institute, University College Dublin.
    5. Paul, Pavitra & Valtonen, Hannu, 2015. "Health inequality in the Russian Federation: An examination of the changes in concentration and achievement indices from 1994 to 2013," MPRA Paper 70150, University Library of Munich, Germany, revised 05 Feb 2016.
    6. repec:ucn:wpaper:10197/1111 is not listed on IDEAS
    7. Qiu, Tian, 2007. "The Adjusted Measure of Body Mass Index and its Impact on Health," MPRA Paper 6270, University Library of Munich, Germany.
    8. Gunasekara, Fiona Imlach & Carter, Kristie & Blakely, Tony, 2011. "Change in income and change in self-rated health: Systematic review of studies using repeated measures to control for confounding bias," Social Science & Medicine, Elsevier, vol. 72(2), pages 193-201, January.
    9. Kim, Bokyung & Jeong, Jinook, 2017. "Dynamics of adolescents’ life satisfaction and effect of class rank percentile: Evidence from Korean panel data," Journal of Economic Psychology, Elsevier, vol. 59(C), pages 8-28.
    10. David Cantarero & Marta Pascual, 2005. "Regional Differences In Health In Spain - An Empirical Analysis," ERSA conference papers ersa05p551, European Regional Science Association.

    More about this item

    Keywords

    Income; Health; German Reunification; Panel Data; Attrition;

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being
    • Z1 - Other Special Topics - - Cultural Economics

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