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Health Heterogeneity, Portfolio Choice and Wealth Inequality

Author

Listed:
  • Juergen Jung
  • Chung Tran

Abstract

This paper documents empirical evidence on the long-lasting effects of poor health on stock market participation, asset portfolio composition, and the wealth gap over the lifecycle in the U.S. To quantify the significance of this health-wealth portfolio channel, we formulate a structural lifecycle model that incorporates elastic labor supply, asset portfolio choice, and household heterogeneity in health status, health expenditure, health insurance, and earnings ability. Through counterfactual simulations, we demonstrate that the health-wealth portfolio channel plays a significant role in explaining variations in wealth gaps across groups and over the lifecycle. Finally, our findings highlight the importance of the health insurance system in mitigating wealth inequality in the US.

Suggested Citation

  • Juergen Jung & Chung Tran, 2024. "Health Heterogeneity, Portfolio Choice and Wealth Inequality," ANU Working Papers in Economics and Econometrics 2024-702, Australian National University, College of Business and Economics, School of Economics.
    • Handle: RePEc:acb:cbeeco:2024-702
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    File URL: https://cbe.anu.edu.au/researchpapers/econ/wp702.pdf
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    More about this item

    Keywords

    Health and income risks; Health insurance; Heterogeneity; Lifecycle savings; Risky and safe assets; Asset portfolio; Inequality.;
    All these keywords.

    JEL classification:

    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G51 - Financial Economics - - Household Finance - - - Household Savings, Borrowing, Debt, and Wealth
    • G52 - Financial Economics - - Household Finance - - - Insurance
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • H21 - Public Economics - - Taxation, Subsidies, and Revenue - - - Efficiency; Optimal Taxation
    • I13 - Health, Education, and Welfare - - Health - - - Health Insurance, Public and Private
    • I14 - Health, Education, and Welfare - - Health - - - Health and Inequality

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