Health and wealth of elderly couples: Causality tests using dynamic panel data models

A positive relationship between socio-economic status (SES) and health, the socalled “health-wealth gradient”, is repeatedly found in many industrialized countries. This study analyzes competing explanations for this gradient: causal effects from health to wealth (health causation) and causal effects from wealth to health (wealth or social causation). Using six biennial waves of couples aged 51-61 in 1992 from the U.S. Health and Retirement Study, we test for causality in panel data models incorporating unobserved heterogeneity and rich dynamics. In contrast to tests relying on models with only first order dynamics or without unobserved heterogeneity, these tests do not provide any evidence of wealth-health causality. On the other hand, we find strong evidence of causal effects from both spouses’ health on household wealth.