Roger Wilkins, University of Melbourne
Dean Lillard, Richard Burkhauser, Markus H. Hahn
health, income inequality, top income shares
We use Cross-National Equivalent File (CNEF) data from Australia, Great Britain, and the United States to investigate whether and how an individual’s self-reported health varies with income inequality. We combine these survey data on individual health with time series data on the share of taxable income reported by the top one percent of tax units. Because the income share series in each country covers many years, we are able to relate the probability of being in poor health to contemporaneous inequality and to the average inequality each birth cohort experienced in the first 20 years of life. Simple correlations are statistically significant. The probability a person reports being in poor health increases with both measures of inequality. However, the simple associations are not robust. When we control for time trends, demographic characteristics and the log of per-capita GDP, the association between health and current inequality turns insignificant or reverses sign; the association between health and early life inequality remains positive and statistically significant for US men and US and British women but is negative and statistically significant for Australian men. To reconcile these findings, we posit that self-reported health depends on basic public health care spending and argue that the associations we estimate will arise if the cost of delivering basic care is either declining in real terms or is rising more slowly than GDP, even when income inequality is growing. Under these conditions, the relationship between inequality and health should change as a country grows richer. In particular, inequality is likely to be associated with worse health when a country is poorer and with better health when a country is richer. Our evidence supports this prediction. Residents in all three countries are more likely to report being in poor health when current inequality is higher, but only when per-capita GDP is low. As per-capita GDP increases, higher inequality is associated with better health. We also find that health is more likely to be worse for US men who experienced higher inequality and low levels of GDP in the first five years of life. Although we do not directly test the hypothesis about the underlying relationship between basic health care and health, these patterns suggest that the association between inequality and health is likely a statistical artifact not the result of a causal effect of inequality per se.