The Irreversible Health Effects of Economic Fluctuations

Sonia Bhalotra, University of Bristol

This paper investigates the impact of macroeconomic shocks on childhood mortality in India, allowing for endogenous changes in the timing of fertility. It also investigates the extent to which this impact is delivered via changes in public health expenditures, private expenditure, and changes in the income distribution. I merge demographic data at the individual-level with a panel of state-level data on GDP and other macroeconomic and political variables by cohort. The data contain almost 200,000 children born across 15 states and 30 years. Microeconomic evidence from rich and poor countries suggests a positive association of income shocks and health. Evidence of a favourable impact of aggregate income shocks on health is more limited. The results suggest that (temporary) downturns in the economy raise mortality, the elasticity for infants being about -0.3. In this way, business cycles have real and irreversible effects on welfare.