Income inequality and health: A panel data analysis of transition economies

This paper undertakes a test of the income inequality hypothesis using a panel dataset for the period 1989-2001 for the transition economies of Central and Eastern Europe, and the Commonwealth of Independent States. We estimate a structural model of the effect of income inequality (proxied by the Gini coefficient) on health status (proxied by life expectancy at birth and the infant mortality rate), using income, education and health expenditure as controls. The analysis involves examining the effects of contemporaneous and lagged inequality on health, as well as the effect of changes in inequality on changes in health. The analysis indicates that not only was the increase in poverty associated with the decline in population health during this period, but also income inequality was a significant factor. We found the relationship between income inequality and health to be robust regardless of the specification of health or the inclusion of controls. Thus, for the transition economies as a whole, our results do not reject the income inequality hypothesis, or in particular, its variants such as the relative income hypothesis.