Income Inequality and Health: Evidence from Developed and Developing Countries

Abstract

We assess the effect of income inequality on life expectancy by performing separate estimations for developed and developing countries. Our empirical analysis challenges the widely held view that inequality matters more for health in richer countries than for health in poorer countries. Employing panel cointegration and conventional panel regressions, we find that income inequality slightly increases life expectancy in developed countries. By contrast, the effect on life expectancy is significantly negative in developing countries. Even though the quantitative effects are small, the contrast between the two country groups proves to be robust to modifications in measurement, specification and methodological choices. Nunnenkamp (2015). Income Inequality and Health: Evidence from Developed and Developing Countries. Economics: The Open-Access, Open-Assessment E-Journal, 9 (2015-4): 1-57. http:// dx.doi.org/10.5018/economics-ejournal.ja. www.economics-ejournal.org 2 JEL I14 C23 IntroductionIncome disparities have widened in various developed and developing countries during the process of economic globalization. Critics have called for redistributive policy interventions, not only for reasons of fairness but also to avoid economic and social costs of wide income gaps. Impaired health could add considerably to such costs. Pickett (2006: 1768) conclude from their comprehensive review of the literature that the large majority of more than 150 empirical studies suggest that "health is less good in societies where income differences are bigger." 1 In particular, this applies to international cross-country studies. Moreover, the literature suggests that the case for health-related redistribution is particularly strong for developed countries. According to Wilkinson (1996: 4), the distribution of income is "one of the most powerful influences on the health of whole populations in the developed world to have come to light." 2 Lynch et al. (1998Lynch et al. ( : 1074 reckoned that the loss of life from income inequality in the United States "is comparable to the combined loss of life from lung cancer, diabetes, motor vehicle crashes, human immunodeficiency virus (HIV) infection, suicide, and homicide in 1995." The so-called Whitehall studies on British civil servants showed "that, even among people who are not poor, there is a social gradient in mortality that runs from the bottom to the top of society" (Marmot 2003: S10). 3 More recently, the meta analysis of Kondo et al. (2009) reveals a modest adverse effect of income inequality on health. 4 Zheng (2012) finds that, while income inequality did not have an instantaneous effect on mortality risk in the United States, long-term _________________________ 1 See also Lynch et al. (2004) who review almost 100 studies addressing the question of whether more unequal societies are less healthy. Informative reviews of the relevant literature are also presented by Judge et al. (1998), Wagstaff and van Doorslaer (2000), Deaton (2003), and Subramanian and Kawachi (2004). 2 I...

Does rising income inequality affect mortality rates in advanced economies?

“…Similar studies conducted in countries without such social and welfare policies (e.g. developing countries) can yield the opposite result (Herzer and Nunnenkamp, 2015). Similarly, when social support programs weaken in these advanced countries, rising income inequality arising from top incomes can have a different effect on the health of the population.…”

“…Dynamic OLS was proposed by Stock and Watson (1993) as a solution to find a simple, efficient estimator where the dependent variable was regressed on the independent variable and its leads and lags. As noted by Herzer and Nunnenkamp (2014), "a regression consisting of co-integrated variables has the property of super-consistency such that the coefficient estimates converge to the true parameter values at a faster rate than they do in standard regressions with stationary variables. The estimated co-integration coefficients are super-consistent even in the presence of temporal and/or contemporaneous correlation between the stationary error term and the regressor(s) (Stock, 1987), implying that co-integration estimates are not biased by omitted stationary variables…the fact that a regression consisting of co-integrated variables has a stationary error term also implies that no relevant non-stationary variables are omitted.…”

“…As such, in order to address this in the robustness analysis, a parsimonious equation using dynamic OLS methodology was selected in line with Herzer and Nunnenkamp (2015). Dynamic OLS was proposed by Stock and Watson (1993) as a solution to find a simple, efficient estimator where the dependent variable was regressed on the independent variable and its leads and lags.…”

“…Additionally, since the trajectory of reduction in mortality rates for men and women differ over time, the use of this measure enables investigation to see if income inequality has a different effect on males and females. Lastly, the methodology incorporates several different functional forms including a panel cointegration specification to address econometric challenges (Herzer and Nunnenkamp, 2015). This enables the investigation of the long-run effect of income inequality on mortality rates.…”

La influencia de la pobreza en el crecimiento económico de Brasil, período 2000-2014

“…Según Herzer & Nunnenkamp (2014) el efecto de la pobreza recae también en la esperanza de vida, con la aplicación de estimaciones separadas para países desarrollados y en desarrollo, determinando que el efecto es significativamente negativo para los países en desarrollo. Bajo este contexto, Andrade & Cabral (2015) emplean otra aplicación de modelo de la U invertida propuesto por Kuznets (1955), en el que se explica la relación entre la desigualdad de la renta con el desarrollo económico para Brasil para los periodos entre 1995 y 2012, concluyendo que la desigualdad de la renta aumenta en los primeros años del desarrollo económico nacional y cuando existe un aumento del crecimiento económico, la desigualdad decrece.…”