Vegard Nygaard, Causes and consequences of life expectancy inequality
Job talk. Vegard Nygaard is a PhD student at the University of Minnesota. He will present a paper entitled "Causes and consequences of life expectancy inequality".
Photo: Vegard Nygaard.
The richest 25 percent of Americans can expect to live about 7 years longer than the poorest 25 percent. This paper studies how policies can be designed to reduce life expectancy inequality and examines what the consequences of these policies are for welfare and the macroeconomy. To do this, I develop a structural life-cycle model with incomplete markets and heterogeneous agents. In the model, agents’ health evolves endogenously depending on the healthiness of their consumption basket. I calibrate the model to match several facts about the population health distribution that I document by constructing an objective measure of health called a frailty index. I show that there exists considerable heterogeneity in frailty in the population. To illustrate, 20-year-olds in the fourth frailty quartile are more frail than 50-year-olds in the first frailty quartile, even though the former group is 30 years younger than the latter. These differences in frailty have large implications for mortality risk, medical expenditure risk, and labor market outcomes. I then use the model to study the implications of health insurance and income tax reforms for life expectancy, life expectancy inequality, the macroeconomy, and welfare. I find that universal health insurance leads to higher life expectancy, lower life expectancy inequality, lower healthcare spending, higher GDP per capita, and higher welfare, even after controlling for the increased tax burden needed to finance the reform. Similarly, I find that the government can reduce life expectancy inequality by expanding Medicaid or by increasing redistribution through income tax reforms, but that these reforms can have adverse implications for the macroeconomy.
Host: Kjetil Storesletten