Health, Income and Economic Development

There is a strong positive relationship between income and health throughout the world. If part of this association represents a causal effect from income to health, then the maintenance and support of incomes becomes a potential policy instrument for promoting population or group health. Policies for income support, such as transfers to the poor, or pensions for the elderly, are instruments that should be assessed, along with the provision of health services, for their ability to improve health. Whether there is a causal link from income to health, and its size, are important research issues for those interested in health in developing countries. This paper uses data from an integrated survey of health and economic well being in South Africa to examine the impact of the South African old age pension on the health of pensioners, and of the prime aged adults and children who live with pensioners. We find evidence of a large and causal effect of income on health status?one that works at least in part through sanitation and living standards, in part through nutritional status, and in part through the reduction of psychosocial stress. The pension is used to upgrade household facilities, and some of the improvements made have health consequences. We find that the household?s water source being on-site and the presence of a flush toilet are both significantly more likely, the greater the number of years of pension receipt in the household. In addition, the presence of a pensioner in the household on average reduces the probability of an adult skipping a meal by 20 percent, and the presence of two pensioners reduces the probability by 40 percent. All adults in the survey were asked a battery of questions of depression, which is inextricably linked to stress and health status. We find that, for households pooling income, the presence of pensioners has a significant effect on reported depression, and that the effect is larger, the greater the number of pensioners. We conclude that governments interested in improving health status may find the provision of cash benefits to be one of the most effective policy tools available to them. Cash provides a yardstick against which other health interventions should be measured.