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EXPLAINING THE DECLINE OF THE U.S. SAVING RATE: THE ROLE OF HEALTH EXPENDITURE
Author(s) -
Chen Yi,
Mazzocco Maurizio,
Személy Béla
Publication year - 2019
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/iere.12405
Subject(s) - copayment , economics , percentage point , medical expenses , demographic economics , food and drug administration , point (geometry) , public economics , labour economics , agricultural economics , health care , medicine , economic growth , health insurance , finance , emergency medicine , geometry , mathematics , management
The U.S. saving rate declined by 8% between 1980 and 2009. We document that the decline can be explained by rising health expenditures. Using exogenous variation in medical expenses generated by Food and Drug Administration drug approvals, we document that a 1 percentage point increase in health expenditure generated a decline in saving rate of 0.9 percentage points. We then estimate a model of household decisions to evaluate the mechanisms behind the decline. We find that the rise in health expenses and drop in saving rate are driven by progress in health technology, reduction in copayment rates, and improvements in income processes.