Townsend et al, 1982). While the question of causal direction in the association between health and economic outcomes remains (Deaton, 2002;Marmot, 2002), it is clear that the association is most likely to be reciprocal and that the direction of the relationship is likely to be contingent on the life stage of the individual. For instance, poor parents will be less able than rich parents to give their children an upbringing that ensures them good health and a competitive education (Smith, 1999), whereas ill health in adulthood can deprive working adults of income, and thereby reduce their wealth.In this study we examine the association between health and economic performance in Sweden, with`health' defined simply as the`absence of sickness'. Specifically, we use an extensive longitudinal individual-level database to explore how ill health affects local economies via effects on individuals, families, and businesses.The empirical analysis is carried out in three steps, beginning with an analysis of the individual-level economic effects of sickness. The aim of this analysis was to establish whether a decline in health has severe individual-level economic effects with potential for macrolevel repercussions. The second step was to analyze if a severe illness also has economic and social effects on other family members. With this analysis we aim to show that both social and human capital explanations are needed to give a full account of the interaction between health events and social or economic outcomes. The third step was to analyze the extent to which a severe case of illness also