Life-cycle consumption patterns at older ages in the US and the UK: can medical expenditures explain the difference?

Published on 9 September 2016

In this paper we document significantly steeper declines in nondurable expenditures in the UK compared to the US, in spite of income paths being similar. We explore several possible causes, including different employment paths, housing ownership and expenses, levels and paths of health status, number of household members, and out-of -pocket medical expenditures. Among all the potential explanations considered, we find that those to do with healthcare—differences in levels and age paths in medical expenses—can fully account for the steeper declines in nondurable consumption in the UK compared to the US.

In this paper we document significantly steeper declines in nondurable expenditures in the UK compared to the US, in spite of income paths being similar. We explore several possible causes, including different employment paths, housing ownership and expenses, levels and paths of health status, number of household members, and out-of -pocket medical expenditures. Among all the potential explanations considered, we find that those to do with healthcare—differences in levels and age paths in medical expenses—can fully account for the steeper declines in nondurable consumption in the UK compared to the US.

This working paper was updated on 10/09/18.

Authors

James Banks

CPP Co-Director

James is Senior Research Fellow and Professor of Economics at Manchester, working on broad issues in the economics of retirement, savings and health.

Richard Blundell

Richard Blundell

CPP Co-Director

Richard is Co-Director of the Centre for the Microeconomic Analysis of Public Policy (CPP) and Senior Research Fellow at IFS.

James Smith

James Smith

Peter Levell

Associate Director

Peter joined in 2009. He has published several papers on the microeconomics of household spending and labour supply decisions over the life-cycle.