Rich and Healthy better than Poor and Sick? : an Empirical Analysis of Income, Health, and the Duration of the Pension Benefit Spell

Abstract

We analyze the relationship between duration of the pension benefit spell and pension benefit claims from the German public pension system, with a special emphasis on differential results with respect to health. This relationship is crucial and causal for a potential structural pattern of redistribution between different income and health groups, induced by the public pension system. Evidence for such redistribution from poor to rich is present for most of the specifications in our analysis. The specification we believe to be correct is partially-linear, does therefore not impose any parametrical restrictions between duration and benefit claims, and allows for potential endogeneity. The relationship we extract is remarkably close to positively linear. Additionally we find that the income gradient is steeper for pensioners in bad health, meaning that redistribution from the least able to the most able individuals is more pronounced the worse the health status is.