Estimating the effect of income on health and mortality using lottery prizes as an exogenous source of variation in income

Abstract

A vast literature has established a strong positive relation between income and health status and a negative relation with mortality. This paper studies the effects of income on health and mortality, using only the part of income variation due to a truly exogenous factor: monetary lottery prizes of individuals. The findings are that higher income causally generates good health and that this effect is of a similar magnitude as when traditional estimation techniques are used. A 10 percent income increase improves health by about 4-5 percent of a standard deviation. © 2005 by the Board of Regents of the University of Wisconsin System.