Richard Blundell, Margherita Borella, Jeanne Commault, Mariacristina De Nardi, 11 September 2020

As populations age in many countries, the risks associated with health shocks become increasingly important. Health shocks can affect consumption by changing a household’s available resources and/or the marginal utilities of different goods. This column quantifies the response of consumption to health shocks and uses a structural model to disentangle the two mechanisms above. It shows that temporary changes in health are associated with significant changes in non-durable consumption, with stronger effects in low-wealth households. In addition, the marginal utility channel is significantly stronger in explaining these effects than through households’ resources. 

Matteo Picchio, Sigrid Suetens, Jan van Ours, 06 December 2015

The impact of wage and income shocks on labour supply is difficult to measure. Some studies therefore use lottery prizes as an exogenous shock on income. This column looks at the effect of the size of the prize won on employment status and salaried earnings, using data from Dutch lotteries. The findings show that lottery prizes lead to a reduction of working hours but not to a decrease in the employment rate.

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