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The relative impact of income and health on the subjective well-being across generations in Europe

Eric Bonsang

CREPP Working Papers from Centre de Recherche en Economie Publique et de la Population (CREPP) (Research Center on Public and Population Economics) HEC-Management School, University of Liège

Abstract: The relative importance of the components contributing to individual wellbeing are likely to change over the life-cycle. Any social policy, whose the main role is to promote the well-being of the population as a whole, neglecting this aspect will redistribute inefficiently the resources across age categories. This paper analyses the life-cycle preferences over income and health. We estimate the relative effects of health and income shocks on individual well-being across age categories by using subjective measure of well-being from the European Community Household Panel (ECHP) from 1994 to 2001. The analysis uses self-reported satisfaction with different domains of life (main activity, income, health, free time and housing) to construct a measure of individual well-being. The analysis concludes that the effect of household income on the well-being of the elderly is lower than it is for the young. Moreover, illness is associated to a higher drop in the wellbeing of the elderly than it is for the young. The larger impact of illness on the well-being of the elderly is due to the fact that health disease has more impacts on the other domains of life (i.e. satisfaction with main activity and satisfaction with free time) than for the young suggesting that illness is more depressing among the elderly because it decreases their functioning in the different domains of life preventing them to enjoy their daily activities.

Date: 2006
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