Evaluating the role of income, state dependence and individual specific heterogeneity in the determination of subjective health assessments

Abstract

This paper investigates the role of various determinants of an individual's subjective self-assessment of own health. While the economics literature has focused primarily on the role of income on these assessments, we include an examination of the role of state dependence and unobserved individual specific time invariant heterogeneity. We employ a dynamic fixed effects ordered choice model to examine the responses of Australian residents. We find no statistically significant relationship between transitory income and health responses. We also find that while there is evidence of state dependence, this does not appear to be responsible for the distribution of responses. Our results suggest that the variation in the individual specific effects, comprising both observed and unobserved time invariant factors, is primarily responsible for the variation across individuals’ responses.