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Health, wealth and consumption among the Elderly in Britain and the USA

Funded by: ERSC (award no RES-000-23-1526)

Contact: Tania Burchardt and Eleni Karagiannaki

This project aims to shed new light on how people use their resources in old age by examining the effect of health on consumption and savings behaviour of the elderly in Britain and the US. Setting aside labour supply effects, there are at least four ways by which health may affect consumption/savings in later life: 1) poor health increases consumption because of increased current health-related costs, 2) the onset of a health condition decreases subjective life expectancy and hence reduces the marginal utility of savings, 3) poor health imposes constraints on opportunities to spend and thus reduces consumption, 4) the onset of a health condition increases the perceived likelihood of future medical or care expenses.

By examining the composition of consumption and comparing the trajectories of different socio-economic groups, this project aims to determine which of these effects dominates overall and to provide evidence for or against each of the explanations. The analysis is made possible by newly-available panel data in Britain (ELSA) and the US (HRS) which facilitates examination of changes in health status and consumption, controlling for heterogeneity in consumption preferences, and in health endowments and other initial conditions across individuals.

Associated CASEpapers: CASEpaper 136