The Economist‘s Free Exchange blog has some interesting commentary on income inequality and health (“Healthy, wealthy and wise“). The post talks about Angus Deaton’s Spring 2003 NBER Reporter Commentary. In the Reporter, Mr. Deaton states the following:
- “[In a study by Christina Paxon and I], We focused on the idea that health is determined by an individual’s income relative to other members of a reference group whose membership typically is unobserved by the analyst. Even if income inequality has no direct effect on health, the fact that the reference groups are not observed means that the slope of the relationship between health and income depends on the ratio of the between-to-within group components of income inequality. For example, if doctors’ health depends on the income of other doctors, and economists’ health on the income of other economists, then the health-to-income relationship in the pooled data will flatten if the average incomes of the two groups pulls apart.3 Among birth cohorts there is a strong protective effect of income on mortality; the elasticity of mortality rates with respect to income is approximately -0.5.”
Deaton also summarizes a working paper by Anne Case (“Does money protect health status?“) which looks at data from South Africa. “Her work finds evidence of a large causal effect of income on health status — working at least in part through sanitation and living standards, in part through nutritional status, and in part through the reduction of psychosocial stress…Governments interested in improving health status may find the provision of cash benefits to be one of the most effective policy tools available to them. And cash provides a yardstick against which other health interventions can be measured.”
One problem with cash rather than in kind benefits is that there is more potential for corruption when cash benefits are handed out. Cash, however, gives individuals more choice regarding how to use one’s limited resources and also can reduce the transaction costs of administering in-kind governmental transfers.