We construct a dynamic model of a small open economy to analyze the effects of large energy subsi... more We construct a dynamic model of a small open economy to analyze the effects of large energy subsidies. The model includes domestic energy production and consumption, trade in energy at world market prices, as well as private and public sector production. The model is calibrated to Egypt and used to study reforms such as reductions in energy subsidies with corresponding reductions in various tax instruments or increases in infrastructure investment. We calculate the new steady states, transition paths to the new steady state and the size of the associated welfare losses or gains. Our main results for a 15 percent cut in energy subsidies are: (i) Steady state GDP drops in most of our experiments as less energy is used in production. (ii) Steady state consumption rises in most of our experiments. (iii) Welfare can rise by as much as 0.6 percent in consumption equivalent terms. (iv) The largest gains in terms of output and of welfare can be obtained when savings from energy subsidy cuts are used to fund additional infrastructure investment.
Journal of the European Economic Association, Feb 14, 2023
We study the optimal progressivity of personal income taxes in a general equilibrium overlapping ... more We study the optimal progressivity of personal income taxes in a general equilibrium overlapping generations model where individuals are exposed to idiosyncratic shocks to health and labor productivity over the lifecycle. Our results-based on a calibration to the US economy-indicate that the presence of health risk and health insurance has a strong effect on the optimal level of tax progressivity. Given the existing non-universal health insurance system in the US, the optimal income tax system is highly progressive in order to provide a sufficient amount of redistribution and social insurance to unhealthy low income individuals. The total welfare gain from optimizing the progressivity level is 5.6 percent in compensating lifetime consumption. The introduction of more comprehensive health insurance systems, such as Medicare for all, leads to large decreases in the optimal level of tax progressivity. When health expenditure risk is not modeled our framework exhibits an optimal income tax system similar to prior literature that abstracts from health risk. These findings highlight the importance of accounting for the unique characteristics of health and health insurance policies when designing optimal income taxes.
Lazarsfeld and the economist Oskar Morgenstern -with the financial support from the Ford Foundati... more Lazarsfeld and the economist Oskar Morgenstern -with the financial support from the Ford Foundation, the Austrian Federal Ministry of Education and the City of Vienna, the Institute for Advanced Studies (IHS) is the first institution for postgraduate education and research in economics and the social sciences in Austria. The Economics Series presents research done at the Department of Economics and Finance and aims to share "work in progress" in a timely way before formal publication. As usual, authors bear full responsibility for the content of their contributions. Das Institut für Höhere Studien (IHS) wurde im Jahr 1963 von zwei prominenten Exilösterreicherndem Soziologen Paul F. Lazarsfeld und dem Ökonomen Oskar Morgenstern -mit Hilfe der Ford-Stiftung, des Österreichischen Bundesministeriums für Unterricht und der Stadt Wien gegründet und ist somit die erste nachuniversitäre Lehr-und Forschungsstätte für die Sozial-und Wirtschaftswissenschaften in Österreich. Die Reihe Ökonomie bietet Einblick in die Forschungsarbeit der Abteilung für Ökonomie und Finanzwirtschaft und verfolgt das Ziel, abteilungsinterne Diskussionsbeiträge einer breiteren fachinternen Öffentlichkeit zugänglich zu machen. Die inhaltliche Verantwortung für die veröffentlichten Beiträge liegt bei den Autoren und Autorinnen.
We investigate the association between age and medical spending in the U.S. using data from the M... more We investigate the association between age and medical spending in the U.S. using data from the Medical Expenditure Panel Survey (MEPS). We estimate a partial linear seminonparametric model and construct "pure" life-cycle profiles of health spending simultaneously controlling for time effects (i.e. institutional changes and business cycles effects) and cohort effects (i.e. generation specific conditions). We find that time and cohort effects introduce a significant estimation bias into predictions of health expenditures per age group, especially for individuals older than 60 years. The estimation biases introduced by cohort effects increase monotonically with age while time effects are non-monotone. Overall, cohort effect biases dominate time effect biases in magnitude for high age groups.
B E Journal of Theoretical Economics, Oct 24, 2010
This paper studies global social interactions in a stylized model of marriage and divorce with co... more This paper studies global social interactions in a stylized model of marriage and divorce with complementarities across agents. The key point of departure from traditional models of social interactions is that actions are interrelated and sequential. We establish existence and uniqueness results akin to those in traditional models. In contrast to these models, however, we show that the presence of strategic complementarities is no longer sufficient to generate a social multiplier that exceeds one in this environment. Self-fulfilling conformity, whereby a greater desire to conform at the individual level leads to greater homogeneity of choices in the aggregate, is not retained either. Some empirical implications are also discussed.
We quantify the importance of idiosyncratic health risk in a calibrated general-equilibrium model... more We quantify the importance of idiosyncratic health risk in a calibrated general-equilibrium model of Social Security. We construct an overlapping-generations model with rational-expectations households, idiosyncratic labor income and health risk, profit-maximizing firms, incomplete insurance markets, and a government that provides pensions and health insurance. We calibrate this model to the U.S. economy and perform two sets of computational experiments: (i) we decrease the size of Social Security, and (ii) we modify the progressivity of Social Security's benefit-earnings rule. We find that cutting Social Security's payroll tax in general equilibrium increases overall welfare, but by a lesser extent when health risk is present. When we modify the progressivity of Social Security's benefit-earnings rule, we find that a lump-sum benefit unrelated to past income increases overall welfare, but by a larger extent in the presence of health risk. A linear (fully proportional) benefit-earnings rule, on the other hand, reduces overall welfare, but also by a larger extent in the presence of health risk. Together, our results suggest that Social Security's implicit insurance is more valuable for low-and medium-income households when health risk is present in the model environment.
In this paper I derive subjective health expectations using the RAND-HRS data. These expectations... more In this paper I derive subjective health expectations using the RAND-HRS data. These expectations can be used in the estimation of structural life-cycle models. I use a Bayesian updating mechanism in order to correct for focal point responses and reporting errors of the orignial health expectations variable. In addition, I test the quality of the health expectations measure and describe its correlation with various health indicators and other individual characteristics. I find that subjective health expectations do contain additional information that is not incorporated in subjective mortality expectations and that the rational expectations assumption cannot be rejected for subjective health expectations.
We analyze whether a consumer driven health care plan like the newly established Health Savings A... more We analyze whether a consumer driven health care plan like the newly established Health Savings Accounts (HSAs) can reduce health care expenditures in the United States and increase the fraction of the population with health insurance. We use an overlapping generations model with health uncertainty and endogenous health care spending. Agents can choose between a low deductible-and a high deductible health insurance. If agents choose to purchase the high deductible health insurance, they are allowed to contribute tax free to an HSA. We examine the steady state effects of introducing HSAs into a system with private health insurance for young agents and Medicare for old agents. Since the model is a general equilibrium model, we fully account for feedback effects from both, factor markets and insurance markets. Our results from numerical simulations indicate that HSAs can decrease total health expenditures by up to 3% of GDP but increase the number of uninsured individuals by almost 5%. Furthermore, HSAs decrease the aggregate level of health capital and therefore decrease output. We also address possible extensions of the HSA reform that include the eligibility to pay health insurance premiums with HSA funds, the full privatization of Medicaid via HSAs, and Medicare for workers.
We quantify the effects of the Affordable Care Act (ACA) using a stochastic general equilibrium o... more We quantify the effects of the Affordable Care Act (ACA) using a stochastic general equilibrium overlapping generations model with endogenous health capital accumulation calibrated to match U.S. data on health spending and insurance take-up over the lifecycle. We find that the introduction of an insurance mandate and the expansion of Medicaid which are at the core of the ACA increase the insurance take-up rate of workers to almost universal coverage but decrease capital accumulation, labor supply and aggregate output. Penalties for not having insurance as well as subsidies to assist low income individuals' purchase of insurance via health insurance market places do reduce the adverse selection problem in private health insurance markets and do counteract the crowding-out effect of the Medicaid expansion. The redistributional measures embedded in the ACA result in welfare gains for low income individuals in poor health and welfare losses for high income individuals in good health. The overall welfare effect depends on the size of the ex-post moral hazard effect, tax distortions and general equilibrium price adjustments.
We use data from two representative U.S. household surveys, the Medical Expenditure Panel Survey ... more We use data from two representative U.S. household surveys, the Medical Expenditure Panel Survey (MEPS) and the Health and Retirement Study (RAND-HRS) to estimate transition probability matrices between health states over the lifecycle from age 20-95. We compare non-parametric counting methods and parametric methods where we control for individual characteristics as well as time and cohort effects. We align two year transition probabilities from HRS with one year transition probabilities in MEPS using a stochastic root method assuming a Markov structure. We find that the non-parametric counting method and the regression specifications based on ordered logit models produce similar results over the lifecycle. However, the counting method overestimates the probabilities of transitioning into bad health states. In addition, we find that young women have worse health prospects than their male counterparts but once individuals get older, being female is associated with transitioning into better health states with higher probabilities than men. We do not find significant differences of the conditional health transition probabilities between African Americans and the rest of the population. We also find that the lifecycle patterns are stable over time. Finally, we discuss issues with controlling for time effects, sample attrition, the Markov assumption, and other modeling issues that can arise with categorical outcome variables.
In this paper we develop a general equilibrium overlapping generations (OLG) model with health sh... more In this paper we develop a general equilibrium overlapping generations (OLG) model with health shocks to analyze the life-cycle pattern of insurance choice and health care spending. We use data from the Medical Expenditure Panel Survey (MEPS) and show that our model is able to match the life-cycle trends of insurance take up ratios and average medical expenditures in the U.S. We then demonstrate how this model can be used to conduct health care policy analysis by evaluating the macroeconomic effects of a counter factual health care reform using a system of universal health insurance vouchers. Our results suggest that health insurance vouchers are able to extend insurance coverage to the entire population but they also increase aggregate spending on health. More importantly, we find that the positive insurance effect (efficient risk pooling) dominates the negative incentive effect (tax distortions and moral hazard) which results in significant welfare gains for all generations when a payroll tax is used to finance the voucher program. In addition, our results suggest that the choice of tax financing instrument and accounting for general equilibrium price adjustments are critical in determining the performance of the voucher program.
The present study examines whether the college enrollment decision of young individuals (student ... more The present study examines whether the college enrollment decision of young individuals (student full-time, student part-time, non-student) depends on health insurance coverage via a parent's family health plan. Our findings indicate that the availability of parental health insurance has significant effects on the probability that a young individual enrolls as a full-time student. A young individual who has access to health insurance via a parent is up to 22 percent more likely to enroll as a full-time student than an individual without parental health insurance. After controlling for unobserved heterogeneity this probability drops to 5.5-6.5 percent but is still highly significant. We also find that the marginal effect of the availability of parental health insurance has a larger effect on older students between ages 21-23. We provide a brief discussion about possible implications of the Affordable Care Act of 2010 in this context.
Journal of Economic Dynamics and Control, Jun 1, 2022
We quantify the welfare implications of three alternative approaches to providing health insuranc... more We quantify the welfare implications of three alternative approaches to providing health insurance: (i) a US-style mix of private and public health insurance, (ii) compulsory universal public health insurance (UPHI) and (iii) private health insurance for workers combined with government subsidies and price regulation. We use a Bewley-Grossman lifecycle model calibrated to match the lifecycle structure of earnings and health risks in the US. For all three systems we find that welfare gains triggered by a combination of improvements in risk sharing and wealth redistribution dominate welfare losses caused by tax distortions and ex-post moral hazard effects. Overall, the UPHI system outperforms the other two systems in terms of welfare gains if the coinsurance rate is properly designed. A direct comparison between the US system to a well-designed UPHI system reveals that large welfare gains are possible in the long-run. However, such a radical reform faces political impediments due to opposing welfare effects across different income groups.
This paper studies the impact of health insurance on individual out-of-pocket health expenditures... more This paper studies the impact of health insurance on individual out-of-pocket health expenditures in China. Using China Health and Nutrition Survey data between 1991 and 2006, we apply two-part and sample selection models to address issues caused by censored data and selection on unobservables. We find that, although the probability of accessing health care increases with the availability of health insurance, the level of out-of-pocket health expenditure decreases. Our results from a selection model with instrumental variables suggest that having health insurance reduces the expected out-of-pocket health expenditure of an individual by 29.42 percent unconditionally. Meanwhile, conditional on being subjected to positive health expenditure, health insurance helps reduce out-of-pocket spending by 44.38 percent. This beneficial effect of health insurance weakens over time, which may be attributable to increases in the coinsurance rates of health insurances in China.
We explore the determinants of inspection outcomes across 1.6 million Occupational Safety and Hea... more We explore the determinants of inspection outcomes across 1.6 million Occupational Safety and Health Agency audits from 1990 through 2010. We find that discretion in enforcement differs in state and federally conducted inspections. State agencies are more sensitive to local economic conditions, finding fewer standard violations and fewer serious violations as unemployment increases. Larger companies receive greater lenience in multiple dimensions. Inspector issued fines and final fines, after negotiated reductions, are both smaller during Republican presidencies. Quantile regression analysis reveals that Presidential and Congressional party affiliations have their greatest impact on the largest negotiated reductions in fines.
We study the optimal progressivity of personal income taxes in a general equilibrium overlapping ... more We study the optimal progressivity of personal income taxes in a general equilibrium overlapping generations model where individuals are exposed to idiosyncratic shocks to labor productivity and health status over the lifecycle. Our results—based on a calibration to the US economy—indicate that both, the presence of health risk and the available insurance institutions, have a strong effect on the optimal level of tax progressivity. Given the fragmented and non-universal health insurance system in the US, a welfare maximizing income tax system is substantially more progressive than the current US income tax. The higher progressivity provides additional redistribution and social insurance, especially for unhealthy low income individuals who have limited access to health insurance. When exposure to health risk is removed or reduced by introducing more comprehensive health insurance systems, we observe large decreases in the optimal level of income tax progressivity, and the optimal tax...
We study the dynamic general equilibrium effects of introducing a social pension pro-gram to elde... more We study the dynamic general equilibrium effects of introducing a social pension pro-gram to elderly informal sector workers in developing countries who lack formal risk sharing mechanisms against income and longevity risk. To this end, we formulate a stochastic dy-namic general equilibrium model that incorporates defining features of developing countries: a large informal sector, private transfers as an informal safety net, and a non-universal so-cial security system. We find that the extension of retirement benefits to informal sector workers results in efficiency losses due to adverse effects on capital accumulation and the allocation of resources across formal and informal sectors. Despite these losses recipients of social pensions experience welfare gains as the positive insurance effects attributed to the extension of a social insurance system dominate. The welfare gains crucially depend on the skill distribution, private intra-family transfers and the specific tax used to finance the expansion.
We estimate to what extent a large scale health care reform disproportionately affects the mortal... more We estimate to what extent a large scale health care reform disproportionately affects the mortality rate of boys in the context of a developing country with cultural preferences favoring boys. We use arguably exogenous variations due to a health care reform-the National Health Policy-which was implemented in Nepal in 1991 along with data from the Nepal Living Standard Survey 1996 and estimate that improved quality of primary health care facilities (by one standard deviation) reduces the mortality rate of infant boys by 3.3 percentage points but does not affect the mortality rate of infant girls. We then construct a new cost measure for access to care in newly provisioned hospitals and find that higher access costs (by one standard deviation) increase the mortality rate of infant boys by 4 percentage points after the reform but, again, do not affect the mortality rate of girls. Our analysis points to societal gender preferences for sons and the consequent neglect of daughters' health as potential drivers of some of the observed differences in mortality between genders. Our research highlights the important role of cultural norms in shaping the outcomes of large scale health care reforms.
We quantify the importance of idiosyncratic health risk in a calibrated general-equilibrium model... more We quantify the importance of idiosyncratic health risk in a calibrated general-equilibrium model of Social Security. We construct an overlapping-generations model with rational-expectations households, idiosyncratic labor income and health risk, profit-maximizing firms, incomplete insurance markets, and a government that provides pensions and health insurance. We calibrate this model to the U.S. economy and perform two sets of computational experiments: (i) we decrease the size of Social Security, and (ii) we modify the progressivity of Social Security's benefit-earnings rule. We find that cutting Social Security's payroll tax in general equilibrium increases overall welfare, but by a lesser extent when health risk is present. When we modify the progressivity of Social Security's benefit-earnings rule, we find that a lump-sum benefit unrelated to past income increases overall welfare, but by a larger extent in the presence of health risk. A linear (fully proportional) benefit-earnings rule, on the other hand, reduces overall welfare, but also by a larger extent in the presence of health risk. Together, our results suggest that Social Security's implicit insurance is more valuable for low-and medium-income households when health risk is present in the model environment.
We study the spread of COVID-19 infections and deaths by county poverty level in the US. In the b... more We study the spread of COVID-19 infections and deaths by county poverty level in the US. In the beginning of the pandemic, counties with either very low poverty levels or very high poverty levels reported the highest numbers of cases. A U-shaped relationship prevails for counties with high population density while among counties with low population density, only poorer counties report high incidence rates of COVID-19. Second, we discuss the pattern of infections spreading from higher to lower income counties. Third, we show that stay-at-home mandates caused significantly higher reductions in mobility in high income counties that experienced adverse weather shocks than counties that did not. These effects are not present in counties with high poverty rates. Using weather shocks in combination with stay-at-home mandates as an instrument for social distancing, we find that measures taken to promote social distancing helped curb infections in high income counties but not in low income counties. These results have important policy implications for containing the spread of infectious diseases in the future.
We construct a dynamic model of a small open economy to analyze the effects of large energy subsi... more We construct a dynamic model of a small open economy to analyze the effects of large energy subsidies. The model includes domestic energy production and consumption, trade in energy at world market prices, as well as private and public sector production. The model is calibrated to Egypt and used to study reforms such as reductions in energy subsidies with corresponding reductions in various tax instruments or increases in infrastructure investment. We calculate the new steady states, transition paths to the new steady state and the size of the associated welfare losses or gains. Our main results for a 15 percent cut in energy subsidies are: (i) Steady state GDP drops in most of our experiments as less energy is used in production. (ii) Steady state consumption rises in most of our experiments. (iii) Welfare can rise by as much as 0.6 percent in consumption equivalent terms. (iv) The largest gains in terms of output and of welfare can be obtained when savings from energy subsidy cuts are used to fund additional infrastructure investment.
Journal of the European Economic Association, Feb 14, 2023
We study the optimal progressivity of personal income taxes in a general equilibrium overlapping ... more We study the optimal progressivity of personal income taxes in a general equilibrium overlapping generations model where individuals are exposed to idiosyncratic shocks to health and labor productivity over the lifecycle. Our results-based on a calibration to the US economy-indicate that the presence of health risk and health insurance has a strong effect on the optimal level of tax progressivity. Given the existing non-universal health insurance system in the US, the optimal income tax system is highly progressive in order to provide a sufficient amount of redistribution and social insurance to unhealthy low income individuals. The total welfare gain from optimizing the progressivity level is 5.6 percent in compensating lifetime consumption. The introduction of more comprehensive health insurance systems, such as Medicare for all, leads to large decreases in the optimal level of tax progressivity. When health expenditure risk is not modeled our framework exhibits an optimal income tax system similar to prior literature that abstracts from health risk. These findings highlight the importance of accounting for the unique characteristics of health and health insurance policies when designing optimal income taxes.
Lazarsfeld and the economist Oskar Morgenstern -with the financial support from the Ford Foundati... more Lazarsfeld and the economist Oskar Morgenstern -with the financial support from the Ford Foundation, the Austrian Federal Ministry of Education and the City of Vienna, the Institute for Advanced Studies (IHS) is the first institution for postgraduate education and research in economics and the social sciences in Austria. The Economics Series presents research done at the Department of Economics and Finance and aims to share "work in progress" in a timely way before formal publication. As usual, authors bear full responsibility for the content of their contributions. Das Institut für Höhere Studien (IHS) wurde im Jahr 1963 von zwei prominenten Exilösterreicherndem Soziologen Paul F. Lazarsfeld und dem Ökonomen Oskar Morgenstern -mit Hilfe der Ford-Stiftung, des Österreichischen Bundesministeriums für Unterricht und der Stadt Wien gegründet und ist somit die erste nachuniversitäre Lehr-und Forschungsstätte für die Sozial-und Wirtschaftswissenschaften in Österreich. Die Reihe Ökonomie bietet Einblick in die Forschungsarbeit der Abteilung für Ökonomie und Finanzwirtschaft und verfolgt das Ziel, abteilungsinterne Diskussionsbeiträge einer breiteren fachinternen Öffentlichkeit zugänglich zu machen. Die inhaltliche Verantwortung für die veröffentlichten Beiträge liegt bei den Autoren und Autorinnen.
We investigate the association between age and medical spending in the U.S. using data from the M... more We investigate the association between age and medical spending in the U.S. using data from the Medical Expenditure Panel Survey (MEPS). We estimate a partial linear seminonparametric model and construct "pure" life-cycle profiles of health spending simultaneously controlling for time effects (i.e. institutional changes and business cycles effects) and cohort effects (i.e. generation specific conditions). We find that time and cohort effects introduce a significant estimation bias into predictions of health expenditures per age group, especially for individuals older than 60 years. The estimation biases introduced by cohort effects increase monotonically with age while time effects are non-monotone. Overall, cohort effect biases dominate time effect biases in magnitude for high age groups.
B E Journal of Theoretical Economics, Oct 24, 2010
This paper studies global social interactions in a stylized model of marriage and divorce with co... more This paper studies global social interactions in a stylized model of marriage and divorce with complementarities across agents. The key point of departure from traditional models of social interactions is that actions are interrelated and sequential. We establish existence and uniqueness results akin to those in traditional models. In contrast to these models, however, we show that the presence of strategic complementarities is no longer sufficient to generate a social multiplier that exceeds one in this environment. Self-fulfilling conformity, whereby a greater desire to conform at the individual level leads to greater homogeneity of choices in the aggregate, is not retained either. Some empirical implications are also discussed.
We quantify the importance of idiosyncratic health risk in a calibrated general-equilibrium model... more We quantify the importance of idiosyncratic health risk in a calibrated general-equilibrium model of Social Security. We construct an overlapping-generations model with rational-expectations households, idiosyncratic labor income and health risk, profit-maximizing firms, incomplete insurance markets, and a government that provides pensions and health insurance. We calibrate this model to the U.S. economy and perform two sets of computational experiments: (i) we decrease the size of Social Security, and (ii) we modify the progressivity of Social Security's benefit-earnings rule. We find that cutting Social Security's payroll tax in general equilibrium increases overall welfare, but by a lesser extent when health risk is present. When we modify the progressivity of Social Security's benefit-earnings rule, we find that a lump-sum benefit unrelated to past income increases overall welfare, but by a larger extent in the presence of health risk. A linear (fully proportional) benefit-earnings rule, on the other hand, reduces overall welfare, but also by a larger extent in the presence of health risk. Together, our results suggest that Social Security's implicit insurance is more valuable for low-and medium-income households when health risk is present in the model environment.
In this paper I derive subjective health expectations using the RAND-HRS data. These expectations... more In this paper I derive subjective health expectations using the RAND-HRS data. These expectations can be used in the estimation of structural life-cycle models. I use a Bayesian updating mechanism in order to correct for focal point responses and reporting errors of the orignial health expectations variable. In addition, I test the quality of the health expectations measure and describe its correlation with various health indicators and other individual characteristics. I find that subjective health expectations do contain additional information that is not incorporated in subjective mortality expectations and that the rational expectations assumption cannot be rejected for subjective health expectations.
We analyze whether a consumer driven health care plan like the newly established Health Savings A... more We analyze whether a consumer driven health care plan like the newly established Health Savings Accounts (HSAs) can reduce health care expenditures in the United States and increase the fraction of the population with health insurance. We use an overlapping generations model with health uncertainty and endogenous health care spending. Agents can choose between a low deductible-and a high deductible health insurance. If agents choose to purchase the high deductible health insurance, they are allowed to contribute tax free to an HSA. We examine the steady state effects of introducing HSAs into a system with private health insurance for young agents and Medicare for old agents. Since the model is a general equilibrium model, we fully account for feedback effects from both, factor markets and insurance markets. Our results from numerical simulations indicate that HSAs can decrease total health expenditures by up to 3% of GDP but increase the number of uninsured individuals by almost 5%. Furthermore, HSAs decrease the aggregate level of health capital and therefore decrease output. We also address possible extensions of the HSA reform that include the eligibility to pay health insurance premiums with HSA funds, the full privatization of Medicaid via HSAs, and Medicare for workers.
We quantify the effects of the Affordable Care Act (ACA) using a stochastic general equilibrium o... more We quantify the effects of the Affordable Care Act (ACA) using a stochastic general equilibrium overlapping generations model with endogenous health capital accumulation calibrated to match U.S. data on health spending and insurance take-up over the lifecycle. We find that the introduction of an insurance mandate and the expansion of Medicaid which are at the core of the ACA increase the insurance take-up rate of workers to almost universal coverage but decrease capital accumulation, labor supply and aggregate output. Penalties for not having insurance as well as subsidies to assist low income individuals' purchase of insurance via health insurance market places do reduce the adverse selection problem in private health insurance markets and do counteract the crowding-out effect of the Medicaid expansion. The redistributional measures embedded in the ACA result in welfare gains for low income individuals in poor health and welfare losses for high income individuals in good health. The overall welfare effect depends on the size of the ex-post moral hazard effect, tax distortions and general equilibrium price adjustments.
We use data from two representative U.S. household surveys, the Medical Expenditure Panel Survey ... more We use data from two representative U.S. household surveys, the Medical Expenditure Panel Survey (MEPS) and the Health and Retirement Study (RAND-HRS) to estimate transition probability matrices between health states over the lifecycle from age 20-95. We compare non-parametric counting methods and parametric methods where we control for individual characteristics as well as time and cohort effects. We align two year transition probabilities from HRS with one year transition probabilities in MEPS using a stochastic root method assuming a Markov structure. We find that the non-parametric counting method and the regression specifications based on ordered logit models produce similar results over the lifecycle. However, the counting method overestimates the probabilities of transitioning into bad health states. In addition, we find that young women have worse health prospects than their male counterparts but once individuals get older, being female is associated with transitioning into better health states with higher probabilities than men. We do not find significant differences of the conditional health transition probabilities between African Americans and the rest of the population. We also find that the lifecycle patterns are stable over time. Finally, we discuss issues with controlling for time effects, sample attrition, the Markov assumption, and other modeling issues that can arise with categorical outcome variables.
In this paper we develop a general equilibrium overlapping generations (OLG) model with health sh... more In this paper we develop a general equilibrium overlapping generations (OLG) model with health shocks to analyze the life-cycle pattern of insurance choice and health care spending. We use data from the Medical Expenditure Panel Survey (MEPS) and show that our model is able to match the life-cycle trends of insurance take up ratios and average medical expenditures in the U.S. We then demonstrate how this model can be used to conduct health care policy analysis by evaluating the macroeconomic effects of a counter factual health care reform using a system of universal health insurance vouchers. Our results suggest that health insurance vouchers are able to extend insurance coverage to the entire population but they also increase aggregate spending on health. More importantly, we find that the positive insurance effect (efficient risk pooling) dominates the negative incentive effect (tax distortions and moral hazard) which results in significant welfare gains for all generations when a payroll tax is used to finance the voucher program. In addition, our results suggest that the choice of tax financing instrument and accounting for general equilibrium price adjustments are critical in determining the performance of the voucher program.
The present study examines whether the college enrollment decision of young individuals (student ... more The present study examines whether the college enrollment decision of young individuals (student full-time, student part-time, non-student) depends on health insurance coverage via a parent's family health plan. Our findings indicate that the availability of parental health insurance has significant effects on the probability that a young individual enrolls as a full-time student. A young individual who has access to health insurance via a parent is up to 22 percent more likely to enroll as a full-time student than an individual without parental health insurance. After controlling for unobserved heterogeneity this probability drops to 5.5-6.5 percent but is still highly significant. We also find that the marginal effect of the availability of parental health insurance has a larger effect on older students between ages 21-23. We provide a brief discussion about possible implications of the Affordable Care Act of 2010 in this context.
Journal of Economic Dynamics and Control, Jun 1, 2022
We quantify the welfare implications of three alternative approaches to providing health insuranc... more We quantify the welfare implications of three alternative approaches to providing health insurance: (i) a US-style mix of private and public health insurance, (ii) compulsory universal public health insurance (UPHI) and (iii) private health insurance for workers combined with government subsidies and price regulation. We use a Bewley-Grossman lifecycle model calibrated to match the lifecycle structure of earnings and health risks in the US. For all three systems we find that welfare gains triggered by a combination of improvements in risk sharing and wealth redistribution dominate welfare losses caused by tax distortions and ex-post moral hazard effects. Overall, the UPHI system outperforms the other two systems in terms of welfare gains if the coinsurance rate is properly designed. A direct comparison between the US system to a well-designed UPHI system reveals that large welfare gains are possible in the long-run. However, such a radical reform faces political impediments due to opposing welfare effects across different income groups.
This paper studies the impact of health insurance on individual out-of-pocket health expenditures... more This paper studies the impact of health insurance on individual out-of-pocket health expenditures in China. Using China Health and Nutrition Survey data between 1991 and 2006, we apply two-part and sample selection models to address issues caused by censored data and selection on unobservables. We find that, although the probability of accessing health care increases with the availability of health insurance, the level of out-of-pocket health expenditure decreases. Our results from a selection model with instrumental variables suggest that having health insurance reduces the expected out-of-pocket health expenditure of an individual by 29.42 percent unconditionally. Meanwhile, conditional on being subjected to positive health expenditure, health insurance helps reduce out-of-pocket spending by 44.38 percent. This beneficial effect of health insurance weakens over time, which may be attributable to increases in the coinsurance rates of health insurances in China.
We explore the determinants of inspection outcomes across 1.6 million Occupational Safety and Hea... more We explore the determinants of inspection outcomes across 1.6 million Occupational Safety and Health Agency audits from 1990 through 2010. We find that discretion in enforcement differs in state and federally conducted inspections. State agencies are more sensitive to local economic conditions, finding fewer standard violations and fewer serious violations as unemployment increases. Larger companies receive greater lenience in multiple dimensions. Inspector issued fines and final fines, after negotiated reductions, are both smaller during Republican presidencies. Quantile regression analysis reveals that Presidential and Congressional party affiliations have their greatest impact on the largest negotiated reductions in fines.
We study the optimal progressivity of personal income taxes in a general equilibrium overlapping ... more We study the optimal progressivity of personal income taxes in a general equilibrium overlapping generations model where individuals are exposed to idiosyncratic shocks to labor productivity and health status over the lifecycle. Our results—based on a calibration to the US economy—indicate that both, the presence of health risk and the available insurance institutions, have a strong effect on the optimal level of tax progressivity. Given the fragmented and non-universal health insurance system in the US, a welfare maximizing income tax system is substantially more progressive than the current US income tax. The higher progressivity provides additional redistribution and social insurance, especially for unhealthy low income individuals who have limited access to health insurance. When exposure to health risk is removed or reduced by introducing more comprehensive health insurance systems, we observe large decreases in the optimal level of income tax progressivity, and the optimal tax...
We study the dynamic general equilibrium effects of introducing a social pension pro-gram to elde... more We study the dynamic general equilibrium effects of introducing a social pension pro-gram to elderly informal sector workers in developing countries who lack formal risk sharing mechanisms against income and longevity risk. To this end, we formulate a stochastic dy-namic general equilibrium model that incorporates defining features of developing countries: a large informal sector, private transfers as an informal safety net, and a non-universal so-cial security system. We find that the extension of retirement benefits to informal sector workers results in efficiency losses due to adverse effects on capital accumulation and the allocation of resources across formal and informal sectors. Despite these losses recipients of social pensions experience welfare gains as the positive insurance effects attributed to the extension of a social insurance system dominate. The welfare gains crucially depend on the skill distribution, private intra-family transfers and the specific tax used to finance the expansion.
We estimate to what extent a large scale health care reform disproportionately affects the mortal... more We estimate to what extent a large scale health care reform disproportionately affects the mortality rate of boys in the context of a developing country with cultural preferences favoring boys. We use arguably exogenous variations due to a health care reform-the National Health Policy-which was implemented in Nepal in 1991 along with data from the Nepal Living Standard Survey 1996 and estimate that improved quality of primary health care facilities (by one standard deviation) reduces the mortality rate of infant boys by 3.3 percentage points but does not affect the mortality rate of infant girls. We then construct a new cost measure for access to care in newly provisioned hospitals and find that higher access costs (by one standard deviation) increase the mortality rate of infant boys by 4 percentage points after the reform but, again, do not affect the mortality rate of girls. Our analysis points to societal gender preferences for sons and the consequent neglect of daughters' health as potential drivers of some of the observed differences in mortality between genders. Our research highlights the important role of cultural norms in shaping the outcomes of large scale health care reforms.
We quantify the importance of idiosyncratic health risk in a calibrated general-equilibrium model... more We quantify the importance of idiosyncratic health risk in a calibrated general-equilibrium model of Social Security. We construct an overlapping-generations model with rational-expectations households, idiosyncratic labor income and health risk, profit-maximizing firms, incomplete insurance markets, and a government that provides pensions and health insurance. We calibrate this model to the U.S. economy and perform two sets of computational experiments: (i) we decrease the size of Social Security, and (ii) we modify the progressivity of Social Security's benefit-earnings rule. We find that cutting Social Security's payroll tax in general equilibrium increases overall welfare, but by a lesser extent when health risk is present. When we modify the progressivity of Social Security's benefit-earnings rule, we find that a lump-sum benefit unrelated to past income increases overall welfare, but by a larger extent in the presence of health risk. A linear (fully proportional) benefit-earnings rule, on the other hand, reduces overall welfare, but also by a larger extent in the presence of health risk. Together, our results suggest that Social Security's implicit insurance is more valuable for low-and medium-income households when health risk is present in the model environment.
We study the spread of COVID-19 infections and deaths by county poverty level in the US. In the b... more We study the spread of COVID-19 infections and deaths by county poverty level in the US. In the beginning of the pandemic, counties with either very low poverty levels or very high poverty levels reported the highest numbers of cases. A U-shaped relationship prevails for counties with high population density while among counties with low population density, only poorer counties report high incidence rates of COVID-19. Second, we discuss the pattern of infections spreading from higher to lower income counties. Third, we show that stay-at-home mandates caused significantly higher reductions in mobility in high income counties that experienced adverse weather shocks than counties that did not. These effects are not present in counties with high poverty rates. Using weather shocks in combination with stay-at-home mandates as an instrument for social distancing, we find that measures taken to promote social distancing helped curb infections in high income counties but not in low income counties. These results have important policy implications for containing the spread of infectious diseases in the future.
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Papers by Juergen Jung