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Life-Cycle Consumption Patterns at Older Ages in the United States and the United Kingdom: Can Medical Expenditures Explain the Difference?

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  • James Banks
  • Richard Blundell
  • Peter Levell
  • James P. Smith

Abstract

This paper documents significantly steeper declines in nondurable expenditures at older ages in the United Kingdom compared to the United States, in spite of income paths being similar. Several possible causes are explored, including different employment paths, housing ownership and expenses, levels and paths of health status, number of household members, and out-of-pocket medical expenditures. Among all the potential explanations considered, those relating to health care—differences in levels and age paths in medical expenses and medical expenditure risk—can fully account for the steeper declines in nondurable consumption in the United Kingdom compared to the United States.

Suggested Citation

  • James Banks & Richard Blundell & Peter Levell & James P. Smith, 2019. "Life-Cycle Consumption Patterns at Older Ages in the United States and the United Kingdom: Can Medical Expenditures Explain the Difference?," American Economic Journal: Economic Policy, American Economic Association, vol. 11(3), pages 27-54, August.
    • Handle: RePEc:aea:aejpol:v:11:y:2019:i:3:p:27-54
    Note: DOI: 10.1257/pol.20170182
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    References listed on IDEAS

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    1. Robert A. Pollak, 1969. "Conditional Demand Functions and Consumption Theory," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 83(1), pages 60-78.
    2. Garry Barrett & Peter Levell & Kevin Milligan, 2014. "A Comparison of Micro and Macro Expenditure Measures across Countries Using Differing Survey Methods," NBER Chapters, in: Improving the Measurement of Consumer Expenditures, pages 263-286, National Bureau of Economic Research, Inc.
    3. William Passero & Thesia I. Garner & Clinton McCully, 2014. "Understanding the Relationship: CE Survey and PCE," NBER Chapters, in: Improving the Measurement of Consumer Expenditures, pages 181-203, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Kellerborg, Klas & Wouterse, Bram & Brouwer, Werner & van Baal, Pieter, 2021. "Estimating the costs of non-medical consumption in life-years gained for economic evaluations," Social Science & Medicine, Elsevier, vol. 289(C).
    2. Rory McGee & Eric French & John Bailey Jones, 2022. "Saving After Retirement," University of Western Ontario, Departmental Research Report Series 202213, University of Western Ontario, Department of Economics.
    3. Patrick Moran & Martin Orquote Connell & Cormac Orquote Dea & Francesca Parodi, 2021. "Heterogeneity in Household Spending and Well-being around Retirement," Working Papers wp427, University of Michigan, Michigan Retirement Research Center.
    4. Karolos Arapakis & Eric French & John Bailey Jones & Jeremy McCauley, 2021. "On the Distribution and Dynamics of Medical Expenditure Among the Elderly," Working Papers wp436, University of Michigan, Michigan Retirement Research Center.
    5. Dantas Guimarães, Silvana & Ferreira Tiryaki, Gisele, 2020. "The impact of population aging on business cycles volatility: International evidence," The Journal of the Economics of Ageing, Elsevier, vol. 17(C).
    6. David Sturrock & Stefan Groot & Jan Möhlmann, 2022. "Wealth, gifts, and estate planning at the end of life," CPB Discussion Paper 442, CPB Netherlands Bureau for Economic Policy Analysis.
    7. Koji Yasuda, 2022. "Microdata analysis about the effects of health status and bequest motive on the elderly household assets in Japan," International Journal of Economic Policy Studies, Springer, vol. 16(1), pages 27-41, February.
    8. Herrera-Araujo, Daniel & Hammitt, James K. & Rheinberger, Christoph M., 2020. "Theoretical bounds on the value of improved health," Journal of Health Economics, Elsevier, vol. 72(C).

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    More about this item

    JEL classification:

    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D15 - Microeconomics - - Household Behavior - - - Intertemporal Household Choice; Life Cycle Models and Saving
    • I11 - Health, Education, and Welfare - - Health - - - Analysis of Health Care Markets
    • J14 - Labor and Demographic Economics - - Demographic Economics - - - Economics of the Elderly; Economics of the Handicapped; Non-Labor Market Discrimination

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