Life-Cycle Consumption Patterns at Older Ages in the US and the UK: Can Medical Expenditures Explain the Difference?
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.
The research reported in this paper was not the result of a for-pay consulting relationship. Further, none of the authors nor their respective institutions have a financial interest in the topic of the paper that might constitute a conflict of interest. This research was supported by grants from the National Institute on Aging and the ESRC Centre for the Microeconomic Analysis of Public Policy at IFS. The authors would like to thank David Rumpel and Iva Maclennan for expert research assistance with the preparation of the NHIS and Brendan Williams for help constructing price indices for the US. The authors are grateful for comments from Michael Hurd, David Laibson and other attendees at the NBER economics of aging meeting in Boulders Arizona. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.