IFS Working Paper (W16/16)

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

Date: 09 September 2016
Publisher: The IFS
JEL classification: JEL D10, D11, D12, D14, D91
DOI: 10.1920/wp.ifs.2016.1616

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.