Health, Consumption and Inequality

We use a stylized model of endogenous health choices to construct compensated variation measures of inequality between individuals in different education and wealth groups at age 50, taking into account differences in consumption, differences in health, and differences in mortality between types. In doing so, we allow for the more disadvantaged types to take actions to improve their health when given some extra income. We use a simple revealed preference argument to measure the health-improving technology with information on consumption, medical expenditure, and health transitions by different types. We find that inequality in education is much more damaging in welfare terms than education in wealth due to the larger differences in life expectancy by education groups than by wealth groups. Our estimates of health technology show that only a small fraction of life expectancy differences between individuals of different education can be imputed to differential medical expenditure after age 50.