Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2012:21: Do Socioeconomic Factors Really Explain Income-Related Inequalities in Health? Applying a Twin Design to Standard Decomposition Analysis

Ulf-G Gerdtham (), Petter Lundborg (), Carl Hampus Lyttkens () and Paul Nystedt ()
Additional contact information
Ulf-G Gerdtham: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Petter Lundborg: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Carl Hampus Lyttkens: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden
Paul Nystedt: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

Abstract: The concentration index and decomposition analysis are commonly used in economics to measure and explain socioeconomic inequalities in health. Such analysis builds on the strong assumption that a health production function can be estimated without substantial bias implying that health is caused by socioeconomic outcomes, which is hard to prove. This article contributes to the decomposition literature by applying a twin design to standard decomposition analysis of socioeconomic health inequalities in Sweden. The twin-based decomposition estimates, which control for unobserved endowments at the twin-pair level, are much lower in magnitude than estimates obtained via typical OLS on the same sample. This demonstrates that OLS-based decompositions are severely upward biased due to underlying confounders, exaggerating the contribution of income and education to health inequality, which in turn limits the usefulness of such decompositions for policy purposes.

Keywords: Causality; Health Inequality; Health; Socioeconomic; Income; Twins

JEL-codes: I10; I12; I14

42 pages, August 20, 2012

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