Sick and cold? Evidence on the dynamic interplay between energy poverty and self-perceived health

Although a close association between energy poverty and ill-health has been widely documented, robust evidence on the dynamic and bidirectional nature of this relationship remains limited. We employ a dynamic latent class model on rich longitudinal data from the Household, Income, and Labour Dynamics in Australia Survey to uncover patterns of dynamic interdependence between energy poverty and self-perceived ill-health. Our approach integrates key modelling features, such as state dependence and time-varying unobserved heterogeneity, while also revealing and quantifying mechanisms of joint dependence over time. Unlike previous studies, our model shows that although energy poverty and ill-health seem to mutually influence each other, the effect of ill-health on energy poverty appears to be comparatively larger, suggesting that ill-health might be a stepping stone to energy poverty. In addition, we identify three main types of individuals corresponding to different socioeconomic profiles, varying levels of vulnerability to changes in energy prices and distinct geographical distributions. We complement this analysis with a simulation exercise estimating the size and effectiveness of government transfers required to lift individuals out of energy poverty within each latent population groups. Overall, these findings may indicate the need for targeted interventions rather than an exclusive reliance on energy subsidies.