Income Gradients in Health-State Dependence

Philippe De Donder, François Lefèvre, Marie-Louise Leroux and Quitterie Roquebert

No 26-1758, TSE Working Papers from Toulouse School of Economics (TSE)

Abstract: This paper investigates how marginal utility varies with health status (e.g. health-state dependence) while allowing this relationship to differ across income levels. Building on the existing literature, we develop a framework that quantifies the income adjustments necessary to maintain individuals’ wellbeing when they become disabled. Using SHARE data, we empirically estimate how health affects the marginal utility of consumption across the income distribution for older adults in Europe. Our results show that health-state dependence is negative among low-income individuals, indicating that their marginal utility of consumption declines when their health worsens. In contrast, at the very top of the income distribution, health-state dependence is positive, implying that marginal utility of consumption rises as health deteriorates.

Keywords: Health-state dependence, Marginal utility of consumption, Income heterogeneity, SHARE; survey (search for similar items in EconPapers)
JEL-codes: D12 I1 J14 (search for similar items in EconPapers)
Date: 2026-06
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Persistent link: https://EconPapers.repec.org/RePEc:tse:wpaper:131900

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