Income Gradients in Health-State Dependence

Abstract

This paper investigates how marginal utility varies with health status (e.g. health-state dependence) while allowing this relationship to differ across income levels. Building on the existing literature, we develop a framework that quantifies the income adjustments necessary to maintain individuals’ wellbeing when they become disabled. Using SHARE data, we empirically estimate how health affects the marginal utility of consumption across the income distribution for older adults in Europe. Our results show that health-state dependence is negative among low-income individuals, indicating that their marginal utility of consumption declines when their health worsens. In contrast, at the very top of the income distribution, health-state dependence is positive, implying that marginal utility of consumption rises as health deteriorates.

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Reference

Philippe De Donder, François Lefèvre, Marie-Louise Leroux, and Quitterie Roquebert, “Income Gradients in Health-State Dependence”, TSE Working Paper, June 2026.