Juergen Jung and Chung Tran
Abstract: In this paper we first provide empirical evidence on the long-lasting effects of poor health on stock market participation, asset portfolio composition, and the wealth gap over the lifecycle in the U.S. To quantify the importance of this health-wealth portfolio channel we formulate a structural lifecycle model that incorporates elastic labor supply, asset portfolio choice, and household heterogeneity in health status, health expenditure, health insurance, and earnings ability. Through counterfactual simulations, we demonstrate that the health-wealth portfolio channel plays a significant role in explaining variations in wealth gaps across groups and over the lifecycle. Finally, our findings highlight the important role of the health insurance system in reducing wealth inequality.
Keywords: Health and income risks, Health insurance, Heterogeneity, Lifecycle savings, Risky and safe assets, Asset portfolio, Inequality.
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