Health and income inequalities in Europe: What is the role of circumstances?

Abstract

Equality of opportunity theories distinguish between inequalities due to individual effort and those due to external circumstances. Recent research has shown that half of the variability in income of World population was determined by country of birth and income distribution. Since health and income are generally strictly related, the aim of this paper is to estimate how much variability in income and health is determined by external circumstances. We use data from the Survey of Health, Ageing and Retirement (SHARE) and the English Longitudinal Survey on Ageing (ELSA), two comparable multidisciplinary surveys that provide micro-level data on health and financial resources among the elderly for a large number of European countries. Our baseline estimation shows that about 20% of the variability in income is explained by current country-specific circumstances, while health outcomes range from 12% using BMI to 19% using self-rated health. By including early-life circumstances, the explained variability increases almost 20 percentage points for income and for self-rated health but less for other health outcomes. Finally, by controlling for endogeneity issues linked with effort, our estimates indicate that circumstances better explain variability in health outcomes. Results are robust to some tests, and the implications of these findings are discussed.