A note on the use of a single inequality index in testing the effect of income distribution on mortality

A new literature has recently emerged which suggests that among the developed economies, at least in terms of health status, the distribution of income may be more important than its absolute level. In this literature, the effect of income inequality, in particular, relative inequality on health status is tested by examining the relationship between aggregate mortality and a single measure of inequality (such as the Atkinson Index). In this paper we look at whether a single measure of income inequality, even augmented by a measure of representative income can at the aggregate level, distinguish between the effects of relative as opposed to absolute income. An alternative approach that uses disaggregated income to distinguish between the effects of changes in relative and absolute income levels is applied to data from the 1990 US Census and mortality figures from the National Centre for Health Statistics. Our results indicate that the rate of mortality is sensitive to absolute, but not relative poverty and therefore suggest that to improve the health of the poor the focus must be on raising their absolute standard of living. The results also indicate that government supported programs may have important health enhancing effects and may therefore represent a key policy tool to improve the health of those at the bottom of the income distribution.