Health-Related Income Gaps and the Effectiveness of Redistributive Policies in Japan

Previous studies have well documented that individuals with poorer health tend to be economically disadvantaged. This study focuses on the income difference between individuals with reported poor health and their healthier counterparts, which is referred to as a health-related income gap. Using rich data from the Comprehensive Survey of Living Conditions collected from 1989 to 2010 in Japan, we adopt the newly developed unconditional quantile regression (UQR) approach (Firpo et al., Econometrica, 2009) to analyze the income gap at different points along the income distribution. Furthermore, we investigate various types of income for the working-age population aged 25-59: household and personal income, pre- and post-tax income, as well as income after different types of taxes. The results suggest the following major findings: (a) The gap varies significantly along the distribution of income and by income type. When household per capita income increases, the gap due to ill health shrinks. For personal income, however, a U-shape trend is observed, and the gap first decreases and then increases. (b) Compared to health-related gaps in pre-tax income, the gap is greater after income taxes for the lower-middle and middle income earner, and social security contributions tend to widen the gap for those in the lower end of the tail.