Health Heterogeneity, Portfolio Choice and Wealth Inequality

Juergen Jung and Chung Tran

No 2023-07, Working Papers from Towson University, Department of Economics

Abstract: This paper studies how health heterogeneity affects portfolio choice and wealth inequality over the life cycle. We document large and persistent differences in stock market participation, portfolio risk exposure, wealth accumulation and inequality by health status in the United States. To interpret these patterns, we develop a structural life cycle model with health, elastic labor supply, health insurance, and portfolio choice between risky and safe assets, subject to idiosyncratic shocks to health, medical expenditures, earnings capacity, and investment returns. The model quantifies a health–wealth portfolio mechanism through which better health facilitates participation in high-return assets, generating heterogeneous returns that amplify wealth inequality through compounding. Counterfactual simulations show that this channel accounts for a substantial share of observed wealth gaps across health groups and over the life cycle. We further show that health insurance expansion can mitigate wealth inequality not only by insuring medical expenditures, but also by increasing risky-asset participation and reducing return heterogeneity in our two-asset model.

Keywords: Health and income risks; Health insurance; Heterogeneity; Life cycle savings; Risky and safe assets; Asset portfolio; Inequality. (search for similar items in EconPapers)
JEL-codes: E21 G41 G51 G52 H21 I13 I14 (search for similar items in EconPapers)
Pages: 89 pages
Date: 2023-09, Revised 2026-02
New Economics Papers: this item is included in nep-age, nep-dge and nep-ger
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://webapps.towson.edu/cbe/economics/workingpapers/2023-07.pdf First version, 2023 (application/pdf)

Related works:
Working Paper: Health Heterogeneity, Portfolio Choice and Wealth Inequality (2024)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:tow:wpaper:2023-07

Access Statistics for this paper

More papers in Working Papers from Towson University, Department of Economics Contact information at EDIRC.
Bibliographic data for series maintained by Juergen Jung ().