The dynamics of health in British households: Simulation-based inference in panel probit models

The study of income dynamics, such as the analysis of transitions into and out of poverty, has a long history. The empirical analysis of health dynamics is less well established. This paper considers the determinants of a binary indicator for the existence of functional limitations using seven waves (1991-1997) of the British Household Panel Survey(BHPS). Our analysis has two focal points : 1) the relative contributions of state dependence, heterogeneity and serial correlation in explaining the dynamics of health and, 2) the investigation of the e ects of exogenous variables, with a particular focus on educational attainment and long-run and short-run variations in income. To investigate these issues we apply static and dynamic panel probit models with exible error structures. To estimate the probit models we use maximum simulated likelihood(MSL) with antithetic acceleration and implement a recently proposed test for the existence of asymptotic bias. The dynamic models show strong positive state dependence, with the e ect for men around 150% of the e ect for women.