Abstract
We investigate the impact of health shocks on wealth, using all four waves of the Health and Retirement Study, and estimate not only the short-term effect but also the long-term effect of health shocks on wealth of the elderly. We find that new health events lower wealth in elders during the period in which such health shocks occur, but the impact tends to disappear over time. We also find that health shocks result in greater wealth depletion when they occur later in life. Together with existing health problems, the overall impact of health problems on wealth increases over time.
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Notes
For example, if t = 3, \(\Delta W_{3} = \alpha _{3} X + \beta _{2} \Delta H_{1} + \beta _{1} \Delta H_{2} + \beta _{0} \Delta H_{3} \).
We did not use the 1993 data because a recent study found that wealth in the first wave of AHEAD was underreported (Rohwedder et al. 2004). A substantial, unreliable increase in wealth was found in the follow-up interview, and it was concluded that the chances of correcting this error in a reliable manner are slim.
None of the three instrumental variables were significant for the estimation of the 1995/2002 period, whereas although only one instrumental variable (exercise) was significant to predict existing health for the other two periods (1995/1998 and 1995/2000).
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Lee and Kim acknowledge the anonymous referees for their comments.
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Lee, J., Kim, H. A longitudinal analysis of the impact of health shocks on the wealth of elders. J Popul Econ 21, 217–230 (2008). https://doi.org/10.1007/s00148-007-0156-5
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DOI: https://doi.org/10.1007/s00148-007-0156-5