Three essays in inequality and health economics

• Main Author: Ni, Xinwen
• Other Authors: Tang Yang
• Format: Theses and Dissertations
• Language: English
• Published: 2019
• Subjects: DRNTU::Social sciences::Economic development
• Online Access: https://hdl.handle.net/10356/89059; http://hdl.handle.net/10220/47680
• Institution: Nanyang Technological University

This thesis consists of three self-contained essays on inequality and health economics. The first essay investigates the role played by housing in inequality and social mobility. Housing typically takes up a major proportion of households' expenditure, and thus it certainly plays a critical role in shaping the pattern of income inequality and social mobility. Whether high housing price-to-rent ratio will amplify inequality and inhibit social class upgrading is still a controversial issue in the existing literature. In this paper, we develop a partial equilibrium life-cycle framework to address these issues. Agents in our economy are divided into two social classes according to the initial human capital level inherited from their parents. Those who belong to upper class will draw their innate abilities from a distribution that first order stochastically dominates those from lower class. Throughout the entire lifecycle, agents make endogenous human capital investment and housing tenure decisions. We calibrate the model to mimic some stylized facts in the the real world counter part. Our simulation results indicate an inverse-U pattern between housing price-to-rent ratio and measures of income inequality, and as well as a U-shape pattern between price-to-rent ratio and social mobility measured by Shorrocks Index. The implication is that housing tends to amplify the inequality and slow down the social mobility when houses can only be purchased by a small group of agents in the economy. Moreover, our results also suggest that better quality of education as a result of a higher return to human capital investment tends to dampen the role of housing. The second essay studies the role of medical expenses in the saving decision of elderly. We develop an multi period overlapping generation framework to investigate agents' consumption and saving decisions, inequality and welfare among elderly. We assume that agents are heterogeneous in the non-asset income and the medical expenditure. In order to explicitly analyze the effects of medical expenditure, we conduct three counterfactual exercises. We successively shut down the heterogeneity in labor income, in the level and in the dispersion of medical expenses respectively. By comparing the benchmark with the counterfactual results, we find that in general wealth inequality decreases with age, and income uncertainty contributes the most to wealth inequality. Both average consumption and consumption inequality increase with age. Consumption inequality largely tracks income inequality. Though uncertainty in medical expenditures has little effect on consumption inequality, a higher level of medical expenditures may exacerbate consumption inequality. Meanwhile, the average saving of elderly exhibits an inverse-U shape with age. The impacts on average saving are similar both in benchmark and in counterfactual exercises. Welfare increases with age. In the third essay, we build an overlapping generation model to examine the reason why developed countries with similar background have implemented different social health insurance systems. We propose two hypotheses to explain this phenomenon: (i) the different participation rates of the poor in the voting; (ii) the distinct attitudes towards the size of the government and the existence of a compulsory social health insurance system. Agents need to vote for one of two policies: Policy I without Social Health Insurance (SHI) but with the subsidy for the poor, and Policy II with fully covered SHI. By comparing either their current utility or the expected life time utility, households will choose one policy. We find that under Policy I, the derivative of the changes of expected utility with respect to income is not monotonic. This means that both the poorest and the richest dislike the social health insurance system. With the calibrated parameters, we solve the benchmark and find that the public's attitude towards the size of the government and the lower representation of the poor affect the election result. The changes in the minimum consumption level under Policy I affect the voting results most, followed by the attitude. Voting Participant rate plays the most insignificant role in the voting outcome. The sensitivity analysis shows that our main findings are robust to the input parameters.