How Income Influences Health: Decomposition Based on Absolute Income and Relative Income Effects

Abstract

Previous research has confirmed a positive association between income and health, but there are still a lot of inconsistencies on how income affects health. Indeed, this impact is caused by overlaying of absolute income and relative income effects, and only by decomposing and comparing their relative importance within an integrated framework can suggestions be made for health inequalities and health intervention. To deal with this issue, using the panel data from the 2011, 2014, and 2017 waves of the Chinese Longitudinal Healthy Longevity Survey (CLHLS), a well-designed research model is established to decompose and explore the impact. Our results indicate that relative income, rather than absolute income, has a significant negative impact on health performance, and that these associations may be causal in nature. The health inequity persists throughout the life cycle, but it remains relatively stable, without significant expansion or convergence. To some extent, the research-proposed models enrich the related literature on associations between income and health, and the empirical results suggest that as China moves to the stage of higher incomes and accelerated aging, the Chinese government should pay more attention to income inequality and be alert to the risks of "income-healthy poverty" traps.