Income, income inequality, and health: Evidence from China

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Abstract

This paper tests using survey data from China whether individual health is associated with income and community-level income inequality. Although poor health and high inequality are key features of many developing countries, most of the earlier literature has drawn on data from developed countries in studying the association between the two. We find that self-reported health status increases with per capita income, but at a decreasing rate. Controlling for per capita income, we find an inverted-U association between self-reported health status and income inequality, which suggests that high inequality in a community poses threats to health. We also find that high inequality increases the probability of health-compromising behavior such as smoking and alcohol consumption. Most of our findings are robust to different measures of health status and income inequality. Journal of Comparative Economics 34 (4) (2006) 668–693.

Introduction

China has recorded impressive growth over the past 25 years since the introduction of the market economy, and there has been a substantial increase in average living standards. However, in recent years there has been growing concern about the large increase in income inequality during the same period. For example, Bramall (2001) shows that the Gini coefficient for rural China has increased by almost 50 percent from 1980 to 1999. The rising inequality has had and will have important impacts on various aspects of social life, resulting, for example, in frequent social conflicts (Alesina and Perotti, 1996), higher levels of violent crime (Hsieh and Pugh, 1993), and ultimately in a slowing down of economic growth (Aghion et al., 1999). While inequality may affect the society and its economic development in many ways, we focus in this paper on a particular aspect of the socioeconomic effects of inequality, i.e., its impact on health.

The relationship among income, income inequality, and health is an issue that has attracted the attention of a variety of social science disciplines such as economics, sociology, and public health. From an early stage in the debate, it was argued that income has a positive effect on health (Grossman, 1972, Preston, 1975). This is called the absolute income hypothesis. However, some researchers assert that relative income or income inequality plays an equally important role in determining health. According to the relative income hypothesis (or the weak income inequality hypothesis), people who feel more economically disadvantaged than their peers in a reference group are more likely to have poorer health (Marmot et al., 1991, Wilkinson, 1997). Low relative income may cause stress and depression leading to illness (Cohen et al., 1997) or weaken one's power in the allocation of local health-related resources (Deaton, 2003). Some (Wilkinson, 1996) go even further and argue that income inequality may affect the health of both the poor and the well-off in a society (referred to as the strong income inequality hypothesis), possibly through disinvestment in public health and human capital, the erosion of social capital, or stressful social comparisons (Kawachi and Kennedy, 1999).

The relative income or income inequality hypotheses have been empirically tested, but almost exclusively drawing on data from industrialized countries, and the results have been mixed.1 The tests have been conducted at both the aggregate and individual levels. At the aggregate level, a number of studies have shown a robust association between income inequality and public health (e.g., Waldmann, 1992, Kaplan et al., 1996, Kawachi et al., 1997, Lynch et al., 1998). However, the use of aggregate data may be unconvincing. As noted by Gravelle (1998), income inequality may be spuriously correlated with the aggregate measure of health if individual health is a concave function of income. It is therefore difficult to discriminate between the effects of income and income inequality using aggregate data. To differentiate between the absolute income and income inequality effects, recent studies employ individual data. Among these studies, some support the income inequality hypothesis (e.g., Kennedy et al., 1998a, Soobader and LeClere, 1999, Blakely et al., 2001), while others find no significant effects of inequality (e.g., Meara, 1999, Blakely et al., 2002, Mellor and Milyo, 2002).

The goal of this paper is to test the above hypotheses and investigate the relationship between income, income inequality, and health in China, using the individual data from the China Health and Nutrition Survey (CHNS). We find evidence supporting the absolute income hypothesis that income has a positive effect on self-reported health status. Consistent with findings by Daly et al. (1998), we also find evidence supporting the strong version of the income inequality hypothesis but not the weak version. However, unlike previous findings of a linear relationship, our results show an inverted-U association between self-reported health status and inequality, i.e., the detrimental effect of income inequality on health only appears in communities with high inequality. We also test the effect of relative deprivation and income rank on health but find little effect of relative income on health. This is in contrast with the work of Eibner and Evans (2005), who find relative deprivation important in explaining individual health with the exception of rank. Finally, we also show that rising inequality can significantly increase one's probability of engaging in health-compromising behavior such as smoking and alcohol abuse.

We contribute to the literature studying the relationship between income inequality and health in the following ways. First, this paper is one of the first studies to use individual data from a developing country. Although poor health and high inequality are key features of many developing countries, the earlier literature has studied their association drawing mainly on data from the United States and other industrialized countries.2 Moreover, as pointed out by Gerdtham and Johannesson (2004), industrial countries like Sweden may not be the best places for studying the effects of income inequality, because these countries are typically more egalitarian and do not have sufficient variation in income inequality across regions. In contrast, China has both rising inequality and a large variation in inequality across localities (Gustafsson and Li, 2002). Second, we extend the previous work by explicitly distinguishing between the relative income hypothesis and the income inequality hypothesis in the same study. Previous studies have tested either the relative income hypothesis (Deaton, 2001, Eibner and Evans, 2005) or the income inequality hypothesis (e.g., Mellor and Milyo, 2002).3 Finally, we measure the income inequality at the community level, so that our focus is more locally defined than in most previous studies, which focus on the state or county level. Using community-level inequality not only facilitates the empirical test by allowing us to work with a larger variation in inequality, but also permits us to examine the potential impacts of inequality within a society by taking a set of people who are more closely related.

The structure of the paper is as follows. Section 2 presents the hypotheses and literature review. Section 3 describes the data and some measurement issues. Section 4 reports our estimation results. The paper concludes with Section 5.

Section snippets

Hypotheses and previous research

In our study, we attempt to examine whether health outcomes and behavior are correlated with income and income inequality in China. We begin with a discussion of several hypotheses that link income and income distribution to health, followed by a selected review of previous empirical work. We then specify the empirical test for each hypothesis.

Hypothesis 1. Absolute Income Hypothesis

The absolute income hypothesis argues that people with higher incomes have better health outcomes, but income

Data

In this paper, we use the China Health and Nutrition Survey (CHNS) data, which were collected by the Carolina Population Center (CPC) at the University of North Carolina at Chapel Hill, the Institute of Nutrition and Food Hygiene, and the Chinese Academy of Preventive Medicine.12 The CHNS was a longitudinal survey with five waves in 1989, 1991, 1993, 1997, and 2000. The

Estimation results

In this section, we use the 1993 CHNS sample to systematically test various hypotheses discussed in Section 2. The main purpose of our study is to examine the correlation between individual health and income inequality or relative income. We also perform panel data analysis using four rounds of the CHNS data from 1991 to 2000.

Conclusion

In this paper, we employ micro data from China to test several hypotheses linking income and income inequality to individual health status. We find some evidence supporting these hypotheses. First, our results show a concave relationship between self-reported health status and per capita income (the absolute income hypothesis). Additional income brings about greater improvement in the health of the poor than of the rich. Second, we find a significant association between self-reported health

Acknowledgements

We would like to thank the Carolina Population Center for kindly supplying the data and for the World Institute for Development Economics Research for an award. We are very grateful to Loren Brandt, Julan Du, Kai Yuen Tsui, Guanghua Wan and an anonymous referee for very helpful comments.

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