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J Health Econ. 2005 Sep;24(5):997-1017. Epub 2005 Mar 2.

The causal effect of income on health: evidence from German reunification.

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RSSS, Australian National University, Australia.


We investigate whether there was a causal effect of income changes on the health satisfaction of East and West Germans in the years following reunification. Our data source is the German Socio-Economic Panel (GSOEP) between 1984 and 2002, and we fit a recently proposed fixed-effects ordinal estimator to our health measures and use a causal decomposition technique to account for panel attrition. We find evidence of a significant positive effect of income changes on health satisfaction, but the quantitative size of this effect is small. This is the case with respect to current income and a measure of 'permanent' income.

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