Do Economic Inequalities Harm Health? Evidence from Europe

Abstract

Until recently, there has been a consensus among empirical health economists that there is an association between income inequality and individual health, in line with Wilkinson's (1992) idea that the psychosocial effects of the former are detrimental to the latter. However, using US data, Mellor and Milyo (2002) (MM) found no evidence of such association and claimed that the previously reported results are statistical artifacts, arising from the use of aggregate data. This paper uses the European Community Household Panel (ECHP) to check the robustness of MM results. It replicates the MM methodology to assess the effect of country-level income inequality on individuals' health. It is shown that income inequality, whether measured at the regional or the national level, systematically harms individuals' health, regardless of their positions in the income distribution. The results are also robust to a number of aspects MM do not account for. First, random effect models are estimated to account for unobserved heterogeneity. Second, self-assessed and objective measures of health status are also considered. Third, besides the traditional aggregate measures of income inequality, a further measure is constructed reflecting first, how unequal the distribution is and second the relative position of individuals in the income distribution of their own country.