Abstract
This study investigates the effect of health on the economy by focusing on the health gap within a country. The number of child deaths has declined in most developing economies for several decades, but the gap across income classes within a country remains significant. It is well established that as an economy develops, mortality tends to decline. Consequently, people decrease the number of children and increase the average years of schooling. However, not all people change their lifestyles simultaneously in each country. In this study, we develop a model with heterogeneous households and show that a difference in infant mortality affects the aggregate economy in the long run. The model demonstrates that a larger gap within a country deteriorates the underdevelopment trap and hurts the macroeconomy even if infant mortality declines at the macro level.
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