Scandinavian Working Papers in Economics

HERO Online Working Paper Series,
University of Oslo, Health Economics Research Programme

No 2014:5: Health contingent income transfers. Are they relevant?

Kjell Arne Brekke () and Snorre Kverndokk ()
Additional contact information
Kjell Arne Brekke: Department of Economics, Postal: Department of Economics, University of Oslo, , P.O. Box 1095 Blindern, 0317 Oslo, Norway
Snorre Kverndokk: Ragnar Frisch Centre for Economic Research, Postal: Gaustadalléen 21, 0349 Oslo, Norway

Abstract: This paper is an extension of Brekke and Kverndokk (2014), which showed that a limited income transfers from a rich to a poor, both with equal health, will increase the concentration index. In this paper we will demonstrate that such health contingent income transfers are implicit in linear models commonly used in the health economic literature, except if the direction of causality is only in the direction of income to health. However, health contingent transfers may also appear with causality from income to health. We show this in a simplified version of a model in Brekke et al. (2011). The prevalence of health contingent transfers in simple models, indicate that such transfers may be as relevant as the non-contingent ones. Together with our previous results this indicates that we may expect the measured health inequality to be higher the more egalitarian a country is.

Keywords: socioeconomic inequality; health inequality; welfare states; health transfers; income transfers; concentration index

JEL-codes: D31; I12

13 pages, December 4, 2014

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