Effect of income inequality on health: Pathway via public health spending

The pathways through which socio-economic disparities in a geographic area affect individual health continue to intrigue public health officials. We use information from the 2000-2009 Behavioral Risk Factor Surveillance System (BRFSS), Area Resource File (ARF) and Census of Government to examine this relationship at the county as well as at the state level using self-reported health after controlling for smoking, age, education, race, gender, smoking status and racial composition of the community. This paper shows that provision of health-related public goods via public health spending is one of the pathways through which income inequality influences health. Using the well-established theory of power-weighted social decision rule from environmental economics, we show that higher degree of social disparity leads to a lower level of public health spending because people with higher income have more political power and can also seek private care as substitute for public health services. We find income inequality to have the most detrimental effect on the health of the poorest, but living in a big city mediates the effect partially. Also, high income inequality leads to inefficient level of public health spending, which largely influences the poor. Since the BRFSS income data has severe top-coded and other problems, we use household income from the American Community Survey (ACS) during 2000-2009 to fit the Dagum income distribution, and use multiple imputations to obtain synthetic Gini coefficients for each county and state for each of the sample years. We use a multi-level ordered probit model in our empirical estimation.