Is income inequality an important health status determinant in the OECD

Abstract: The proposed adverse impact of income inequality on health has long been an important topic in health economics. A negative correlation between inequality and health has been found in several empirical studies but the issues regarding causality and causes are yet to be resolved. The widespread theory that the effects on health goes via disinvestment in social capital and trust is heavily researched and highly debated. Many studies have found strong correlation between population health and income inequality using state level US data. Inconsistent results have been found using country-level data on mortality rates and income inequality in Europe or OECD. Using cross-sectional data it seems like the correlation is dependent on the countries/states chosen. The ambiguity of the results has led some researchers to disregard inequality as irrelevant when dealing with population health. Others have intensified their search for new evidence. In this study I exploit the fact that yearly estimates of the GINI-coefficient from 2004 and forth are available in the OECD database. It allows for the use of panel data regression with country-specific fixed effects to investigate whether the weak simple correlation observed between income inequality and population health in the OECD could be caused by identification problems. I find strong and significant results indicating that income inequality should indeed be accounted for when dealing with population health in OECD. The link between income inequality and health has important policy implications.