Income Inequality and Health: Evidence from a Settlement Policy

This paper investigates how income inequality affects health. Although a large literature has shown that inhabitants in areas with greater income inequality suffer from worse health, past studies are severely plagued by inadequate data and non-random residential sorting. We address these problems using longitudinal population hospitalization data coupled with a settlement policy where Swedish authorities distributed newly arrived refugee immigrants to their initial area of residence. The policy was implemented in a way that provides a source of plausibly random variation in initial location. Our empirical analysis reveals no statistically significant effect of income inequality on the probability of being hospitalized. This finding holds also when investigating subgroups more vulnerable to negative health influences and when studying different types of diagnoses. There is however some weak indications that inequality has detrimental effects on older persons’ health; but the magnitude of the effect is small. Our estimates are precise enough to rule out large effects of inequality on health.