Health State Dependence of Consumption Behavior with Bequest Motive: Evidence from the Netherlands

We examine health state dependence of consumption in the presence of the bequest motive in the Netherlands. To that end, we use the life-cycle model of consumption behavior where individuals’ health status is treated as a preference shifter and they derive utility from bequeathing wealth. We estimate the model using the Strategic Survey Questions (SSQs) from the novel Health Care Costs survey of the Dutch Longitudinal Internet Studies for the Social sciences (LISS) panel, as well as its Consumption and Health modules. The working sample consists of adults aged 40 years and above. Our core finding suggests that the bequest motive does not change the direction of the health dependence, but rather the magnitude. Secondly, we find significant heterogeneities in health state dependence across different health conditions and consumption measures. We observe negative health state dependence of food consumption in activities of daily living (ADL) and mental health measure (MHI5), but only ADL health state dependence of total consumption expenditure. Moreover, we show how the bequest motive modifies the magnitude of the observed health state dependences. Finally, we show that there is no health state dependence in such health measures as body mass index (BMI) and subjectively reported health.