Humboldt-Universität zu Berlin - High Dimensional Nonstationary Time Series

IRTG1792DP2019 011

The role of medical expenses in the saving decision of elderly: a life cycle

Xinwen Ni

In this paper, we develop an multi period overlapping generation framework to
investigate agents' consumption and saving decisions, inequality and welfare
among elderly. We assume that agents are heterogeneous in the non-asset income
and the medical expenditure. In order to explicitly analyze the e ects of
medical expenditure, we conduct three counterfactual exercises. We successively
shut down the heterogeneity in labor income, in the level and in the dispersion
of medical expenses respectively. By comparing the benchmark with the
counterfactual results, we nd that in general wealth inequality decreases with
age, and income uncertainty contributes the most to wealth inequality. Both
average consumption and consumption inequality increase with age. Consumption
inequality largely tracks income inequality. Though uncertainty in medical
expenditures has little e ect on consumption inequality, a higher level of
medical expenditures may exacerbate consumption inequality. Meanwhile, the
average saving of elderly exhibits an inverse-U shape with age. The impacts on
average saving are similar both in benchmark and in counterfactual exercises.
Welfare increases with age.

Income Inequality, Social Mobility, Price-to-rent ratio

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