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Life Cycle Effects of Health Risk

Author

Listed:
  • Elena Capatina

    (ARC Centre of Excellence in Population Ageing Research, Australian School of Business, University of New South Wales)

Abstract
This paper studies four channels through which health affects individuals: (1) productivity, (2) medical expenditures, (3) available time and (4) survival probabilities, and assesses their roles in determining labor supply, asset accumulation and welfare. Using a life-cycle model calibrated to the U.S. for different education groups, I evaluate the relative importance of each channel and quantify the interactions between them. First, all four channels are important for the macroeconomic variables studied, but the productivity and time endowment channels are the most dominant. I also show that due to significant interactions between channels, they need to be studied within a unified framework over the entire life-cycle. Second, health has larger effects for the non-college than college educated, explaining 35% and 31% of the differences in labor supply and degree of reliance on government transfers across groups, respectively. Health risk accounts for 9% of disposable income inequality for the non-college educated, leading to larger fractions of precautionary savings for this group despite the presence of a consumption floor.

Suggested Citation

  • Elena Capatina, 2012. "Life Cycle Effects of Health Risk," Working Papers 201216, ARC Centre of Excellence in Population Ageing Research (CEPAR), Australian School of Business, University of New South Wales.
    • Handle: RePEc:asb:wpaper:201216
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    File URL: http://www.cepar.edu.au/media/48661/16_life_cycle_effects_of_health_risk_-_elena_capatina.pdf
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    References listed on IDEAS

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    Cited by:

    1. Svetlana Pashchenko & Ponpoje Porapakkarm, 2016. "Cross-Subsidization in Employer-Based Health Insurance and the Effects of Tax Subsidy Reform," National Tax Journal, National Tax Association;National Tax Journal, vol. 69(3), pages 583-612, September.
    2. Svetlana Pashchenko & Ponpoje Porapakkarm, 2013. "Quantitative Analysis of Health Insurance Reform: Separating Regulation from Redistribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 383-404, July.
    3. Fang, H., 2016. "Insurance Markets for the Elderly," Handbook of the Economics of Population Aging, in: Piggott, John & Woodland, Alan (ed.), Handbook of the Economics of Population Aging, edition 1, volume 1, chapter 0, pages 237-309, Elsevier.
    4. Svetlana Pashchenko & Ponpoje Porapakkarm, 2013. "Quantitative Analysis of Health Insurance Reform: Separating Regulation from Redistribution," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(3), pages 383-404, July.

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    More about this item

    Keywords

    Health; Life Cycle Models; Precautionary Saving; Welfare;
    All these keywords.

    JEL classification:

    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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