Income, Relative Income and Income Inequality in Australia - What is the Effect on Individual Health?

This thesis evaluates the evidence for the absolute-income hypothesis (AIH), relative-income hypothesis (RIH) and income-inequality hypothesis (IIH) in Australia using individual level panel data from the first 11 waves of The Household, Income and Labour Dynamics in Australia (HILDA) Survey under General Release 11. The analysis is performed with an individual fixed effects estimation and the internal validity of the results is addressed in a sensitivity analysis. The results do not support the RIH or IIH. Instead, an adverse effect for the RIH is detected, suggesting a positive effect of relative income on health. Support for the AIH is found at first but the findings are not robust towards the sensitivity analysis, suggesting that the relationship between income and health is endogenous. Based on these findings it could be suggested that a countries institutional setting (for example health care system) has a mediating effect on the relationship between income inequality and health. This needs to be further evaluated in a cross-country study in order to establish a true effect.